Air travelers hit with new baggage fees
With oil prices hitting new records almost daily, the nation’s largest air carrier, American Airlines, announced drastic steps Wednesday to “remain viable,” including charging new fees for all checked baggage, slashing domestic flights and laying off thousands of workers.
It was one of the most extreme moves yet by a U.S. airline, and came as the price of oil jumped Wednesday to $133.17 a barrel, up $4.19.
Starting June 15 most American passengers must pay $15 for checking a single bag. That comes on top of the airline’s decision two weeks ago to charge $25 for a second bag.
American, the largest carrier at Los Angeles International Airport, said it was compelled to take the actions in what it called an “extraordinary” environment.
Other airlines are expected to take additional steps to fight the twin curses of rising oil prices and a weak economy, increasing prospects for higher fares and crowded planes as the busy summer travel season kicks into gear with the upcoming Memorial Day weekend.
Already, domestic airfares for summer travel are up 20% compared with a year ago, according to Farecast.com, an online travel search service. American said rising oil prices had increased its expected annual fuel costs by nearly $3 billion since the start of the year.
“There is no sugar-coating the fact we are facing an extraordinarily difficult economic environment,” Gerard Arpey, chief executive of American’s parent, AMR Corp., said during a conference call with reporters Wednesday. “The industry cannot continue in the current state.”
The fee is the first imposed by a major airline for checking in the first bag, a service that has previously been included in the price of the ticket. The fee does not apply to “elite” level frequent-flier club members, those paying full fare and some others.
The airline began charging $25 for a second checked bag earlier this month, and has imposed even higher charges for additional luggage. The airline said it also would raise fees for services including reservation help and the handling of oversized bags.
The moves to generate new revenue came on the heels of another record-breaking day in the petroleum market and raised the prospect of another round of airline bankruptcies if oil prices continued to rise unabated.
On Wall Street, a four-day selling wave in airline stocks intensified as crude oil prices reached record levels. AMR plunged $1.98, or 24%, to $6.22, its lowest since 2003.
Also hitting multiyear lows were UAL Corp., parent of United Airlines, which sank $3.41, or 29.5%, to $8.15; and Continental Airlines, which lost $2.15, or 13%, to $14.20.
In a dramatic reversal, the U.S. airline industry may post a $7.2-billion loss this year compared with a profit of $6.6 billion last year, said Jamie Baker, airlines analyst for J.P. Morgan Chase & Co.
In such a climate the airlines appear to be in a “war of attrition,” Baker said, adding that the carriers seemed to be engaging in “destructive behavior as they attempt to merely outlast one another.”
At current fuel prices, Baker said, a major carrier filing for bankruptcy was a “question of when, not if, in our minds.”
Several major airlines filed for bankruptcy protection after the Sept. 11 terrorist attacks temporarily grounded air travel. Most emerged from bankruptcy by early last year and posted the industry’s first full year of profits in 2007.
In April, however, four smaller airlines, including Aloha Airlines and ATA Airlines, went out of business, citing high fuel prices, and the rest of the industry has been in survival mode ever since.
Major airlines have cut unprofitable routes, slashed payrolls and added fees in hopes of countering their rising fuel expenses. Some domestic flights now include up to $130 in fuel surcharges.
“We are working hard on a number of fronts to cover our skyrocketing fuel costs,” American’s Arpey said.
Among them are plans to cut the number of seats on domestic flights by up to 12% in the fourth quarter by retiring at least 75 older, fuel-guzzling aircraft. American had previously expected fourth-quarter capacity to fall 4.6% from the same period in 2007.
The airline said it had not yet decided where the cuts would be made. At LAX, American and its regional subsidiary, American Eagle, operate about 130 flights a day, about a fourth of which are flown by aircraft identified for retirement. Last year, American flew 8.8 million passengers at LAX, accounting for about 15% of passenger traffic at the airport.
Many of the airplanes American plans to retire are older MD-80 aircraft, which were temporarily grounded last month because of missed wiring safety inspections.
Reducing capacity will lead to job cuts at American and American Eagle, the carrier said, adding that it didn’t know exactly how many people would face layoffs but that the number could be in the “thousands.”
The cuts in service are expected to hit smaller cities hardest. Just this year, nearly 30 cities have lost all scheduled airline service, according to the Bureau of Transportation Statistics.
Travel experts said the new fee would probably have immediate consequences for passengers in the form of longer airport lines and possible delays.
“Frankly, I expect the other Big Six carriers to match American’s move with lightning speed,” said Joe Brocatelle, publisher of the business travel website Joesentme.com. “And frankly, I expect absolute chaos at ticket counters around the nation.”
Brocatelle said security lines could get longer as more passengers attempted to avoid checking their baggage and fly with only carry-on luggage, and more flights could be delayed when passengers are forced to check those carry-ons at the gate because the plane’s overhead bins have filled up.
“More travelers will have lotions-and-potions packets that will need to be checked,” Brocatelle said. “They’re making panic moves that will infuriate travelers and increase their own downward spiral,” he said of the airline.
Several passengers at Orange County’s John Wayne Airport said Wednesday that they were more disappointed than angry at the airline over the new fees.
“It’s actually sad for families because they may not be able to see their grandpa and grandma this summer,” said Gerry Simmons, a San Juan Capistrano empty nester who was returning from visiting her daughter in Louisville, Ky. “But I don’t know if I can fault the airline. Everything is going up, and I think the government needs to step in and do something about it.”
Arpey said that, historically, a softening economy meant lower fuel prices as demand slackened. But “we’re getting hit by a softening economy and at the same time we’re getting an extraordinary surge in oil prices,” he said. “They don’t presage anything good for the economy.”
But Terry Tippler, an airline consultant and publisher of the website Tripplertravel.com,said a drop in air travel was unlikely, even with higher fares and fees.
“We’ve had 11 fare increases this year, and yet bookings are still holding,” Tippler said. “Americans will do anything to take their long-deserved vacation, even if it means putting a brick under that broken couch.”
But Farecast.com spokesman Nick Leahy said there could be one upside to the twin effect of rising fares and declining consumer confidence: Demand for flights could decline, which means seats might not be filled and airlines may cut fares for less popular days of the week such as Tuesdays and Wednesdays.
(BEGIN TEXT OF INFOBOX)
The cost at check-in
First checked bag, $15 (takes effect June 15)
Second checked bag, $25 (took effect May 12)
Third, fourth and fifth bags, $100 each, increased from $80 (May 12)
Sixth through ninth bags, $200 each, increased from $105 to $180 (May 12)
Oversized-baggage fee, $150 each, increased from $100 (immediately)
Source: American Airlines