Airlines think cutbacks could bring back profits

updated 6:15 p.m. ET July 22, 2008

PHOENIX - New travel fees mean hundreds of millions of dollars a year for beleaguered airlines, and executives say they need them more than ever as fuel costs continue to suck profits out of the industry. Plane tickets, it seems, now come with only the bare bones promise of getting from Point A to Point B.

“We’ll manage through this,” US Airways Chairman and CEO Doug Parker said of the ongoing pressure to cope with fuel costs.

“It’s not outrageous to suggest that what’s already been done is enough to get the industry profitable in 2009,” Parker said.

United Airlines, US Airways, and Jet Blue all posted big losses Tuesday, though all three beat Wall Street estimates. Airline stocks, which have been at historic lows for many carriers, shot up as oil prices dropped more than $4 a barrel at one point in Nymex trading.

Last week, Atlanta-based Delta Air Lines Inc. reported a $1.04 billion loss for the quarter and Fort Worth, Texas-based AMR Corp., the parent of American, posted a $1.45 billion loss for the same period. Continental Airlines swung to a $3 million loss.

Amid the dismal profit numbers, airline officials told Wall Street analysts that the silver lining is that a la carte fees may eventually stem the bleeding.

US Airways Group Inc., for example, expects to raise an additional $400 million to $500 million annually, up $100 million from earlier estimates.

The Tempe, Ariz.-based carrier has been more creative than others when it comes to fees. Besides bag charges, it has added charges for sodas and choice seats in coach. The airline also announced previously that it would remove movie systems from many domestic flights to save on fuel.

Meanwhile, JetBlue hopes to bring in about $40 million from customers buying seats with extra leg room this year. Its $15 fee for a second checked bag is expected to translate into about $20 million in additional revenue. A ticket change fee, which doubled to $100 in the second quarter, is part of a “basket of fee changes” expected to produce about $50 million in extra revenue in 2008.

United, which expects a $3.5 billion fuel bill this year, said it could see $275 million in new money from checked luggage fees as well as other baggage charges.

“We’re doing all we can to control our costs and to improve our revenue to offset fuel,” Chairman, President and Chief Executive Glenn Tilton said.

Minneapolis airline expert Terry Trippler said the new travel fees are here to stay. If anything, Trippler said, airlines probably will look to include more fees like charges for carry-ons.

“Whatever is going to cost them money is going to cost you money,” he said. “You carry on a bag, the weight of that bag is going to cost the airline money, therefore it will cost you money. You want a soda, well, to carry those sodas on a plane or to buy them will cost them money. Therefore it will cost you money.”

Consumers need to realize that air travel is no longer the luxury it once was, Trippler said. When people think of airlines, he said, they should imagine it like a big bus with wings.

“You have no amenities on the bus,” he said. “And guess what: they also ask you to pay for a second bag on a bus.”

The message seemed to be lost so far on travelers in New York’s Penn Station.

“I think they are just sticking it to people,” Denise Conway of Gastonia, N.C. said of the airlines. Conway was taking an Amtrak train from New York to North Carolina with her granddaughter, in part because she said it was too expensive to fly.

“Flying is definitely becoming more of a luxury,” she said. “I’m not asking them to sell gourmet dinners, but people like me — I don’t work — I could never afford to fly to New York. Not anymore.”

Michelle O’Leary, 35, of Marshfield, Mass. agreed. Instead of flying, O’Leary bought a cheap fare on Megabus to take her two daughters from New York to Boston. The trip for the three of them cost $96. She said it would have cost them $678 to fly.

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