American Airlines to begin charging for 1st checked bag!

[bogey21]

I happened to see a interview of Herb Kelleher, the recently retired of Chaiman of Southwest....... saying he was sympathetic to AA becuz they were not hedged against the price of oil they way that Southwest was

A number of years ago I was sitting on a Southwest plane next to one of their top execs (can't remember his name). He was bragging about their hedging program. I told him what they ought to do if they really wanted to hedge long term was to buy an oil company with mucho reserves in the ground, that it would be an excellent long-term hedge. He more or less told me I didn't know what I was talking about.

George

 

[T_R_Oglodyte]

I happened to see a interview of Herb Kelleher, the recently retired of Chaiman of Southwest, this morning on CNBC, who, when told of AA's new $15 fee for first checked bag was rather startled and surprised: "Is that right! Wow!"

He recovered by saying he was sympathetic to AA becuz they were not hedged against the price of oil they way that Southwest was, and according to studies, SWA had the the best finances base and rated least likely to succum.

One reason why Alaska Airlines has remained relatively healthy is because they also have hedged against rising fuel costs.

*****

Hedging is a two-way street - if prices go down the airline is locked into above market fuel prices. Since fuel is the largest expense in running an airline, if you guess wrong the company is in big trouble.

The history with runups in fuel costs such as we have recently seen is that prices hit a peak then collapse. There are always respected pundits announcing that inexorably rising fuel prices are inevitable for at least the next decade, prices will peak at some astronomic level, and dogs will be breeding with cats on the street corners of every major metropolis. And Gozer will return in the form of the Sta-Puft marshmallow man.

And every time there are countless "smart" people who go long on the price of oil and take a financial beating when sanity reasserts itself.

 

[Pit]

Hedging is a two-way street - if prices go down the airline is locked into above market fuel prices. Since fuel is the largest expense in running an airline, if you guess wrong the company is in big trouble.

I thought such hedging was done in the form of options. Thus, if fuel prices decline, they are only out the option premium (options simply expire worthless). Not so?

 

[T_R_Oglodyte]

I thought such hedging was done in the form of options. Thus, if fuel prices decline, they are only out the option premium (options simply expire worthless). Not so?

I believe that most of the airline fuel hedging is done via long-term fuel contracts. Alaska Airlines, for example, indicated recently their fuel costs were going to increase this year because their old contracts expired.

 

[Steel5Rings]

Great....now I have to pay for the airline to lose my luggage.

 

[x3 skier]

I thought such hedging was done in the form of options. Thus, if fuel prices decline, they are only out the option premium (options simply expire worthless). Not so?

AFAIK, they are fixed contracts for a certain volume of fuel at a fixed price. If the price goes below the contract, the airline is stuck.

What generally happens is the supplier of the fuel then sometimes engages in options trading to hedge their bet.

Cheers

 

[isisdave]

I flew on Southwest this week, and realized it makes more sense to charge to check a bag on short hauls, where substantial numbers of people actually go on weekend or short business trips with just a carry-on. In that case, the a la carte pricing model makes sense.

But when you're heading to a week-long vacation, there's no way you can avoid checking a bag. When we used to travel cross-country for Christmas, we'd always have one bag full of presents. Just wait until people start cramming those -- and their parkas -- into the overhead bins.

And I too want to know what they're going to do about charging to check when there's no room in the overhead bin. If they waive that fee because it's too time-consuming to collect, we'll all figure that out soon and bring the largest carryon permitted.

I wish they'd just figure out what they need to charge to make a reasonable profit, and let it go at that. We'd pay it if we want to fly. Last week I noticed that ice cream containers, which were half-gallons until a few years ago, have now shrunk from 1.75 quarts to 1.5. It's another example of management who has faith in neither their product nor their customers.

 

[wauhob3]

If AA files bankruptcy protection how does that likely effect FF tickets and miles? If you already have a ticket are you OK? I'm trying to decide if I should use miles for 2009 spring break or save them for what is likely a more expensive flight for 2010.

 

[pjrose]

If AA files bankruptcy protection how does that likely effect FF tickets and miles? If you already have a ticket are you OK? I'm trying to decide if I should use miles for 2009 spring break or save them for what is likely a more expensive flight for 2010.

According to the Aadvantage terms and conditions, they can change things without notice and end the program with six months notice.

I can't imagine the furor that would cause.....

Not likely to happen, but.......

 

[x3 skier]

If AA files bankruptcy protection how does that likely effect FF tickets and miles? If you already have a ticket are you OK? I'm trying to decide if I should use miles for 2009 spring break or save them for what is likely a more expensive flight for 2010.

My miles on TWA, United and Useless Air all were not affected by Bankruptcy or, in the case of TWA demise. My TWA miles transferred to American and there was no change for United or Useless Air.

I doubt there will be any problem other than business as usual, like increased miles required or less seats. I would not worry and get the tickets NOW since if they become worthless later which is highly unlikely, what have you lost anyway.

Cheers

 

[pjrose]

Now, in order to save on fuel, they will start charging extra if you want to wear cloths onto the plane.

:rofl: :rofl: :rofl: :rofl: :rofl:

 

[wauhob3]

Thanks for the answers!

 

[bogey21]

I may be in the minority here but I kind of feel for our Airlines. They have worked hard to cut much of their cost to the bone. With the price of jet fuel today I wouldn't be surprised if they are losing money on every domestic flight, even the full ones.

Maybe what the industry should do is quote the price for their tickets based on all their costs except jet fuel and Gov't mandated taxes and surcharges and be allowed to mark up their quoted (non-fuel, non-tax price) by a recognized per mile fuel surcharge (be it daily, weekly or monthly). They could then eliminate charging for snacks, seat assignments (I just paid $20 to reserve an exit row seat), and baggage checking and get back to competing based on service.

Sure we're going to have to pay more. The airlines aren't going to be able to eat these fuel costs and stay in business. If something like this isn't done, we are going to have a bunch of airline employees frazzled from fighting with customers as they enforce these nutty surcharges, and a very confused and unhappy flying public.

Basically the price you would pay for a ticket would have 3 components, the quoted price, taxes and other Gov't mandated charges, and a charge for fuel. If you think about it, the airlines can control only one of the three.

GEORGE

 

[Carolinian]

Having seen the fuel surcharge scam at work in Europe, that is the LAST thing passengers should want.

Airlines make up whatever fuel surcharge they want, and then quote a phony fare to fool the customer. Search engines show what seems to be the lowest fare, but when you add in the fuel surcharges, it may come out as the highest fare. This dishonest shell game is nothing but a fraud on the consumer. It makes it difficult and timeconsuming to try to compare genuine fares.

The legacies have taken this dishonest practice so far, that many of the LCC's, who were originally the kings of add-ons, have responded by quoting all-in prices.

It is simply dishonest to call something that is a necessary component of the basic product a ''tax''. It takes fuel to fly and airplane to transport passengers, and they should simply be forbidden to charge fro that on the tax line.

I recognize that they should raise fares to cover their costs of production, and have no problem with that. I do have a big problem with sleazy, underhanded add-on charges for something that is part of the basic product.

Now an add-on for checked luggage I have no problem with, as that is not necessarily part of the basic product. I myself usually fly with just a carryon. If someone wants to take more than that, it is an option that the airlines should be able to charge for. Extra luggage means more weight, and therefore more fuel, so the passengers responsible for that legitimately should may more than the passengers who aren't.

And where does the add-on madness end? If labor costs go up, is a ''pilot surcharge'' next? Anything that is part of the basic product should not be allowed to be an add-on.

 

[T_R_Oglodyte]

Having seen the fuel surcharge scam at work in Europe, that is the LAST thing passengers should want.

Airlines make up whatever fuel surcharge they want, and then quote a phony fare to fool the customer. Search engines show what seems to be the lowest fare, but when you add in the fuel surcharges, it may come out as the highest fare. This dishonest shell game is nothing but a fraud on the consumer. It makes it difficult and timeconsuming to try to compare genuine fares.

The legacies have taken this dishonest practice so far, that many of the LCC's, who were originally the kings of add-ons, have responded by quoting all-in prices.

It is simply dishonest to call something that is a necessary component of the basic product a ''tax''. It takes fuel to fly and airplane to transport passengers, and they should simply be forbidden to charge fro that on the tax line.

I recognize that they should raise fares to cover their costs of production, and have no problem with that. I do have a big problem with sleazy, underhanded add-on charges for something that is part of the basic product.

Now an add-on for checked luggage I have no problem with, as that is not necessarily part of the basic product. I myself usually fly with just a carryon. If someone wants to take more than that, it is an option that the airlines should be able to charge for. Extra luggage means more weight, and therefore more fuel, so the passengers responsible for that legitimately should may more than the passengers who aren't.

And where does the add-on madness end? If labor costs go up, is a ''pilot surcharge'' next? Anything that is part of the basic product should not be allowed to be an add-on.

Steve - I totally agree.

 

[bogey21]

Guys, it just seems to me that if the airlimes eliminate all these silly add-ons; quote their fare not including fuel and taxes; we would be able to compare one to another's prices easily. The taxes, etc are set by law. We know what they are going to be. Why not have a fuel surcharge (by the mile or some other reasonable basis) provided by the Government and published daily for all to see.

I, too, travel with only a carry on but don't like the baggage charge as it will just confuse and antagonize non-frequent flyers. Immagine the chaos next Christmas. Will the airlines charge per present?

George

 

[T_R_Oglodyte]

Guys, it just seems to me that if the airlimes eliminate all these silly add-ons; quote their fare not including fuel and taxes; we would be able to compare one to another's prices easily. The taxes, etc are set by law. We know what they are going to be. Why not have a fuel surcharge (by the mile or some other reasonable basis) provided by the Government and published daily for all to see.

I, too, travel with only a carry on but don't like the baggage charge as it will just confuse and antagonize non-frequent flyers. Immagine the chaos next Christmas. Will the airlines charge per present?

George

The last thing I think we want is the Federal government back in the business of deciding what the price is that travelers should pay for their tickets.

It also seems to me this is a classic situation in which the invisible hand of the marketplace can settle the situation without resorting to fiat. Which option would travelers prefer:

• Option A. Have published fixed fare, with surcharges added per individual airline policy or whim. Attendant, of course, is more difficulty making side-by-side fare comparisons.
• Option B. Publish standard air fare, but with actual ticket price unknown until sometime just before departure, when the fuel surcharge is fixed.

Two competing models. Why not let the marketplace sort out which one is preferred by fliers? If it's Option B, airlines that try Option B will generate more business and be more profitable. If Option A is preferred, the Optio nA airlines will benefit.

The trouble with your argument about bags is that where this has already been done - in Europe - the problems you mention haven't occurred or have been resolved. Is there something different between the US and Europe that causes you to believe that travelers in the US won't be able to cope with it whereas Europeans can?

 

[bogey21]

The last thing I think we want is the Federal government back in the business of deciding what the price is that travelers should pay for their tickets.....................Is there something different between the US and Europe that causes you to believe that travelers in the US won't be able to cope with it whereas Europeans can?

OK Keep the Federal Government out of it. Set the fuel price off the closing oil future the third Thursday six months out. The only question would be who sets the factor to multiply against the oil future and when do they do it. Now if I think the price of oil is going down, I wait to buy my ticket. If I think it is going up, I buy now.

As to charging for baggage, your point is valid. The only difference is that Europeans are used to it, most Americans are not but could adjust.

George

 

[T_R_Oglodyte]

OK Keep the Federal Government out of it. Set the fuel price off the closing oil future the third Thursday six months out. The only question would be who sets the factor to multiply against the oil future and when do they do it. Now if I think the price of oil is going down, I wait to buy my ticket. If I think it is going up, I buy now.

There's not a thing I'm aware of that is preventing any airline from adopting that pricing scheme right now. I also can't imagine that option hasn't been/isn't being considered by some airlines.

So let the market decide if that scheme is what customers want. If an airline believes that pricing setup will be favorably received by sufficient customers, they can implement it and increase their profits. They could even include it as a pricing option - pay this fixed fare now, or pay a base fare with an added fuel surcharge added at some later date. Cancellation penalties apply if you fail to convert a base reservation to a full ticketed reservation at the established fuel cutoff date.

 

["Roger"]

To a certain extent, I think the market has already decided. Airlines know that people will choose the cheapest flight on expedia (or whatever) even if the difference is only $5. Thus, the desire to keep the stated fare low.

Also, they can hit frequent flyers with any surcharges. While frequent flyers might gripe about that, it will cause much less stir than raising the mileage requirements for a frequent flyer ticket by ten to twenty percent.

 

[Carolinian]

''Fuel surcharges'' arbitrarily set by an airline so that a phony low price is shown by search engines is a deceptive business practice in or affecting commerce, and should be nailed under consumer protection laws. Many consumers are not going to be able to navigate the system to compare real prices, so the fuel surcharge scam is nothing but a ploy to deceive and defraud consumers.

The last thing I think we want is the Federal government back in the business of deciding what the price is that travelers should pay for their tickets.

It also seems to me this is a classic situation in which the invisible hand of the marketplace can settle the situation without resorting to fiat. Which option would travelers prefer:

• Option A. Have published fixed fare, with surcharges added per individual airline policy or whim. Attendant, of course, is more difficulty making side-by-side fare comparisons.
• Option B. Publish standard air fare, but with actual ticket price unknown until sometime just before departure, when the fuel surcharge is fixed.

Two competing models. Why not let the marketplace sort out which one is preferred by fliers? If it's Option B, airlines that try Option B will generate more business and be more profitable. If Option A is preferred, the Optio nA airlines will benefit.

The trouble with your argument about bags is that where this has already been done - in Europe - the problems you mention haven't occurred or have been resolved. Is there something different between the US and Europe that causes you to believe that travelers in the US won't be able to cope with it whereas Europeans can?

 

[Dave M]

''Fuel surcharges'' arbitrarily set by an airline so that a phony low price is shown by search engines is a deceptive business practice....

Perhaps it's different in Europe, but the major U.S. based search engines that are generally used by those who are most likely to be fooled by such a "deceptive business practice" have for years shown the total price (including all taxes, surcharges and other fees) on the first screen that comes up for a fare. Examples are Orbitz, Travelocity and Expedia. Even Kayak, which searches multiple sites for lowest fares, shows the total cost. So where's the scam?

 

[pwrshift]

I just had an example of fuel surcharges this week. I have Aeroplan points too, and just enough to go biz class return next April to and from Phoenix. After going throught the process with Air Canada at the end they wanted $130 extra per ticket for fuel surcharges ... that's for next April. 2009!

So without booking I called UA and went through the same process ... booking on Air Canada as a partner of UA on Star Alliance ... got the same seats, same dates, same planes without the fuel surcharges Air Canada wanted.

I did notice that both airlines will not let you change or cancel now within 22 days of the flight without adding 'change fees' ... and in UA's case the fee has jumped from $100 to $150 (as of May this year). They are looking at everything obviously where they can stick you for a few more dollars and the sad thing is these fees will probably never go away even if fuel costs go down.

Brian

 

[x3 skier]

Perhaps it's different in Europe, but the major U.S. based search engines that are generally used by those who are most likely to be fooled by such a "deceptive business practice" have for years shown the total price (including all taxes, surcharges and other fees) on the first screen that comes up for a fare. Examples are Orbitz, Travelocity and Expedia. Even Kayak, which searches multiple sites for lowest fares, shows the total cost. So where's the scam?

Agree. Where's the scam?

Cheers

 

[Judy]

Now an add-on for checked luggage I have no problem with, as that is not necessarily part of the basic product.

Except for skiers, scuba divers, etc.
Ever try to fit skis into a carry-on?