- Airlines around the world are using mysterious fees to boost its income.
- These “carrier-imposed fees” or surcharges can amount to hundreds of dollars on an international flight.
- Major US airlines such as American, Delta, and United won’t reveal what these fees actually pay for.
- One analyst referred to these fees as an “indirect price hike.”
Since 2014, airlines in the US have been flush with cash in an unprecedented manner.
These past four years have been the most profitable in US aviation history. While disciplined management and more nimble business strategies have certainly helped, it’s the more than 50% fall in fuel prices between mid-2014 and early 2015 that really kicked profits into high gear.
As you may have noticed during your last trip to the gas station that a fill-up has gotten a lot more expensive. That’s because the price of crude oil has skyrocketed 57% over the past 12 months.
And if you’re concerned by this, you aren’t alone.
Airlines have noticed as well.
“For the nine publicly traded U.S. passenger airlines, earnings for the industry peaked in 2015 but have fallen every year since, due to expenses – including rising fuel costs – outpacing revenues,” Airlines For America or A4A – an industry trade group whose members include American, Alaska, JetBlue, Southwest, Hawaiian, and United – told Business Insider in a statement.
That means there’s now an ever-growing need to find additional profitability as costs rise.
“The airlines, for better or for worse, are much more responsive to investor pressure and investors are as aggressive as ever in wanting to see strong profit margins,” Vinay Bhaskara, a senior business analyst for trade publication Airways, told Business Insider.
And raising fare prices is one way to go about that.
American Airlines CEO Doug Parker told the attendees of an annual meeting of aviation industry luminaries in June to expect higher tickets prices as carriers move to save money.
Norwegian Air chief commercial officer Thomas Ramdahl told us last month that his company has already raised prices.
But base airfares can only go up so much.
For airlines, one way to squeeze more revenue out of a passenger is through fees. Fees that are somewhat mysterious and can be quite pricey for travellers. That’s even with fuel surcharges now outlawed on US domestic routes.
These fees, which are employed by airlines around the world, are especially complex and egregious on international flights.
Here’s are some examples.
For a $US1,739 round-trip flight on American Airlines between Dallas Fort Worth International and London Heathrow, we found on July 2, only $US1,195 of it is the actual airfare. The other $US544 is made up of various taxes and fees imposed by the US and UK governments as well as the airline.
These include a $US36.60 transportation tax, a $US5.60 security fee, and $US7.00 federal inspection fee courtesy of the US government.
The UK government requires a $US102.10 air passenger duty and a $US58.80 passenger service charge.
And a whopping $US320 “carrier-imposed fee.”
We also found a $US1,557 round-trip flight between New York and London on Delta that listed its base airfare at just $US1,012 with a $US320 “carrier-imposed international surcharge” and another $US225 in other taxes and fees.
While most other taxes and surcharge end up in government coffers, the “carrier-imposed fees,” as the name would suggest, goes directly into the airlines’ bank accounts.
And no one outside of the individual airline really knows what it actually pays for.
American declined to provide us with any information about the makeup of these fees.
However, the Fort Worth, Texas-based carrier did tell us in 2016 that it’s a “wide-ranging fee” and is used to “collect money for a lot of different things.”
Delta also declined to go into what these fees entail.
In a statement, the Atlanta-based carrier, whose website explains that its carrier-imposed fees for international flights can be as high as $US650 each way, said;
“Delta always displays the all-in price for booking a flight – from the time customers start exploring fares until they confirm their ticket – which includes the base fare, any applicable surcharges and government taxes and fees. Surcharges may be driven by competitive factors in the marketplace, which differ in the U.S., Europe and all around the globe.”
Finally, we reached out to United and it also decided to shy away from giving us details.
“We typically do not discuss pricing or fare strategy for competitive reasons,” United Airlines told us in an email. “We continuously monitor supply and demand in markets we serve and determine competitive offerings that meet the needs of our customers.”
However, industry observers have a few ideas of their own.
Prominent travel industry analyst Henry Harteveldt went as far as calling these carrier-imposed fees an “indirect price hike.”
According to Harteveldt, these surcharges when bundled together with other fees like seat selection and early boarding can account for more than 15% of an airline’s income.
“These fees represent a disproportionate share of airline profitability,” Harteveldt added. “Without these fees, most airlines won’t be able to report gross profits, let alone net profits.”
Bhaskara echoed this sentiment.
A4A defended the imposition of these airline fees.
“To the extent that fees or other surcharges help airlines generate more revenues or avoid costs for services that some passengers may not value, they help overcome an economic climate in which costs are rising steadily, as they are today,” the group said in a statement. “That also helps airlines and their customers avoid or minimise cuts in service or staffing.”
Sadly, the reality is that there isn’t a whole lot we can do about these fees other than not buying a plane ticket.
“It’s a free market,” Harteveldt said. “Airlines can charge anything it wants.”
NOW WATCH: Executive Life videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.