As United backs down from charging for meals on transatlantic flights, Gary Noakes asks what airlines will try to price up next.
After some hasty back peddling by United Airlines, there will fortunately not be 300 fractious, hungry passengers arriving at Heathrow from Washington every time its flight touches down this month.
Wisely realising its error before it was too late, United has abandoned a proposed trial period whereby it would replace the free economy hot meal service on flights between Dulles and Europe in favour of charging passengers for a range of cold snacks on board.
The airline said it had reversed the decision “in response to what our customers are telling us”. What United’s customers actually did tell it can only be imagined, but what United is telling the industry with its abortive plan speaks volumes.
Booking with a full-service airline used to be reassuring – what you got was largely what you had paid for. These, however, are hard times and many passengers are finding that what they are entitled to falls far short of what they believe they’ve bought.
Just when many airlines, particularly in the US, were finally getting back on track after 9/11, along came the jump in fuel prices. In a 12-month period, crude oil rose from US$60 a barrel in September 2007 to US$100 in March this year, touching almost US$140 in June before falling back. The forecast is for prices to stay above US$120 for the next year, against a background of a credit crunch on both sides of the Atlantic.
Airlines, understandably, are frantically looking at what they can chop next to keep out of the red. The problem is that the major cost-cutting was done in the years after 9/11 – workforces were slimmed, older aircraft scrapped and pension schemes made less generous. This was enough to make airlines very profitable in the good times – that halcyon period only a year ago – but there has since been a rapid change.
British Airways’ chief executive Willie Walsh, whose airline made a respectable £883 million last year, has warned that the industry simply cannot sustain a doubling in the price of one of its most basic costs in such a short period. The collapse of Zoom, Eos, Maxjet and Silverjet were all heavily related to the price of oil. BA’s hedging and ability to surcharge is greater than most, but Walsh has warned that it will be “a considerable achievement” for BA to avoid a loss this year at current oil prices.
What this means is that all airlines, particularly those not as financially sound as BA, will be looking to cut costs – although BA says it has no plans “whatsoever” to charge for food.
The adage that “you get what you pay for” has been embraced by no-frills airlines from the start, but others that once prided themselves on their service are now asking what passengers will go without and what they are willing to pay for.
Technology has brought an added impetus. Consumers are now savvier than to accept the fare offered by a travel agency, and the rise of “screen scrapers” – websites which compare headline prices from a number of carriers – means it is vital to appear to be offering the lowest fare.
Appearing to be cheapest is simple: remove things previously given for free and charge for them once the booking is secured, just as Ryanair et al have been doing for years. Ryanair earns 17 per cent of its operating profit from ancillary sales and Easyjet makes £3.83 per passenger via extras. These include things like hotel rooms, but a great proportion is baggage fees.
Many “stealth charges” pioneered by the no-frills airlines have been introduced by full-service carriers in the last few months. United may have abandoned its austerity catering policy across the Atlantic, but on its domestic services, it begins another test this month. Business class customers on 16 routes will get sandwiches, salad boxes or other cold snacks instead of hot food. Moreover, the food in business will be the same as that sold to economy passengers under United’s Buy on Board policy.
US Airways has also made cuts on domestic services, charging economy passengers US$2 for bottled water rather than handing it out free and raising the price of alcoholic drinks from US$5 to US$7. Even JetBlue, the US budget airline which prides itself on offering customers a little more than they expected, is feeling the pinch. It now charges US$7 for the use of blankets and pillows. JetBlue estimates it will make US$60 million this year from the sale of extra-legroom seats and by charging US$15 for a second checked-in bag.
On this side of the pond, carriers have been more circumspect, aiming their efforts at the back of the plane. In June, Virgin Atlantic extended its charging policy for extra-legroom seats. It already charged £50 or £75 one way for the exit row, depending on journey length, but now asks £30 one way on some flights from Gatwick for those wanting the 20 or so seats that offer a 34-inch pitch instead of the normal 31 inches.
One area where almost all carriers are attempting to save money is on weight, as lighter planes burn less fuel. From November, BA will charge a flat fee of £25 for any bag checked in at more than its 23kg allowance, up to a maximum of 32kg. It has already put up charges for extra bags, depending on the route and class of travel. Since September 1, there is a £25 fee per extra bag for domestic flights and £90 on long-haul services if paid at the airport.
“Unbundling” by airlines is not restricted to what passengers get on board. Since the autumn, many US carriers have quietly reintroduced the Saturday-night stay rules and imposed tougher minimum-stay restrictions in an effort to get more money from business travellers. In the US, the major carriers have introduced fees for inactive segments – cancellations of part of a multi-flight itinerary – that are not removed within 24 hours of a flight’s departure.
None of this fazes Philip Carlisle, chief executive of the Guild of Travel Management Companies, who points out that a good TMC will know how to avoid things like the Saturday-night rule by buying separate tickets. Nor does he believe all hidden charges are a bad thing. “If you are on a day trip, most of the costs are truly discretionary and you can do without.”
The problem for him starts in long-haul. “To retain business travellers, airlines ought to be enhancing the product for the same price, not splitting it out.”
Many passengers are already complaining that unbundling should be the preserve of the no-frills sector. “I don’t necessarily think that airlines reappraising their cost base is a bad thing,” said Paul Tilstone, executive director of the Institute of Travel Management. “Airline tickets are the lowest they have been for years and there is an inevitability that they need to increase for airlines to survive.
“But some airlines are taking off things that the corporate traveller expects and needs. At that point, it will damage the amount of business the airline gets.”
And there are other considerations for airlines, such as their codeshare arrangements. Anyone who booked United’s Washington flight under the code of Bmi, its Star Alliance partner, would not have been too pleased to find themselves with the prospect of no hot food for eight hours.
Even before United’s retreat, Bob Schumacher, Continental Airlines’ UK and Ireland senior director, issued an emphatic “no” when asked if United’s proposals marked the start of full-service carriers emulating no-frills airlines.
Like him, many believe there is less scope to do this kind of thing in Europe than in the US, where airlines have traditionally not been renowned for their service culture. “We are doing very little of this, particularly on the UK side of the Atlantic – the customer has noticed no change,” he said. But he admits: “You can never say never, you can’t predict where the business will go on the cost side.”
Indeed – a few days later, Continental announced it would follow other US carriers and charge economy passengers travelling on discounted tickets within North America US$15 for a checked bag.
Just how far it will go depends on how bad things get. No one is suggesting it, but if things look really bleak and an airline decides to introduce a charge for the use of the toilet on board, there appears to be no reason why it could not do so.
“We can’t see any cabin-safety issue or regulation that would prevent it,” said a slightly alarmed Civil Aviation Authority spokesman. You have been warned…