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Will Strong Summer Travel Be A Turning Point For Airlines?
Originally published on Thu May 16, 2013 4:56 pm
NEAL CONAN, HOST:
By this point in the spring the air travel industry has a pretty good idea of how many people plan to travel on airplanes this summer, and that projection in turn says some interesting things about consumer confidence and the health of our economy. So we want to hear about your plans. Are they different from last year? Are you planning more air travel? 800-989-8255. Email: firstname.lastname@example.org. You can also join the conversation on our website. That's at npr.org, click on TALK OF THE NATION. Marilyn Geewax, NPR's senior business editor is just back from a briefing by the industry group that generates the summer air travel projection every year and she joins us here in studio 42. Nice to have you with us again.
MARILYN GEEWAX, BYLINE: Hi Neal.
CONAN: And what did you learn?
GEEWAX: This is going to be a reasonably good summer, it looks like. Now, keep in mind the airline industry has just been battered for years. They have had a horrible time in the recession: bankruptcies, losses, mergers. Just one thing after another. But it seems like this year, they sort of figured it out and so have the passengers. They started in 2008 when the recession started deepening to add these fees, you know, the baggage fees that we all find so irritating.
CONAN: We all hate. Yes.
GEEWAX: $25, $35, whatever, and then fees for everything: for Wi-Fi, for leg room, for all these various fees.
CONAN: Soon they're going to charge us for the emergency oxygen.
GEEWAX: Well, there are all kinds of crazy plans for boosting those fees but last year, the fees totaled about $6 billion, and that was their whole profit margin. Basically, they break even on the air fares and they figured out that if they charge enough of those fees, they can actually turn a little bit of a profit. But they need those profits. They're taking that money and they're trying to reinvest in things like new equipment, upgrading customer lounges, the airport terminals need more Wi-Fi. I mean, there are lots and lots of upgrades that have been deferred during the recession and now they're getting enough money in those fees that they're able to start to turn the corner and upgrade the industry.
CONAN: And what does that say about the American economy?
GEEWAX: Well, in all the surveys, really, I've looked at a whole lot of things, various organizations that see where people are heading this summer and it looks like everything is pointing up a little bit. Not gangbusters, not going through the roof, but people do want to travel again this year and that's what this association, the Airlines for America, which is the trade group representing airlines, they're predicting that the number of people getting on planes this year will be about 209 million, and that's the best we've seen since 2008.
CONAN: And that represents an increase of 1 percent, and like a lot of the things in this report, tiny increments.
GEEWAX: Yes. Everything is a matter of, you know...
GEEWAX: ...it's a game of inches for these guys. They don't make a lot of money. They're not attracting the crowds they used to have, you know? In 2007, we had 217 passengers. So, you know?
CONAN: Million, that is.
GEEWAX: Or 217 million passengers. So they're inching back up, getting back to where they want to be but all of it is a tough climb but they're getting there. And I think the overall sense both with the economy and with all the travel segments is that we're reaching kind of a new normal where people have settled into the idea that yes, I'm going to have to pay these fees but I accept that and I'm willing to start to travel again.
CONAN: Let's get some callers on in this conversation of how have your plans changed one summer to the next. Do you plan to travel more by air this summer? 800-989-8255. Email us: email@example.com. And Catherine's(ph) on the line with us from Berkeley.
CATHERINE: Hello. Thank you for taking my call. When we made our decision to travel this summer, we thought about how could we better ourselves? How could we view air travel to increase, like the kid's resumes going to sports camps or music camps or it wasn't just a whimsical trip. It was tied into kind of future advancement, basically. And...
CONAN: An investment.
CATHERINE: Oh, that's just - yeah, yeah. So it's just - and, of course, we would take side trips and see family or do fun things, but it was kind of like we justified it by making these choices based on helping us in the future. Thank you.
CONAN: I like the distinction that you had there between seeing family and doing fun things.
CATHERINE: So yeah, we did make - we are traveling more, but it's making us better somehow.
CONAN: Thinking carefully about it. And I think that's a good point, Marilyn.
GEEWAX: Yes. Neal, this is really, exactly - the sentiment that she's expressing is what a lot of surveys are finding. Like I said, people do kind of want to travel again. It's not so over the top, not all, you know, wild travel and crazy parties. It's not over the top at this point. But it's moving the way the airline industry and the way the travel industry wants. People are much more open this year to the idea of staying in a hotel, going to the beach, whatever, instead of just doing the phrase we heard so much during the peak of the recession, was the staycation where people would just simply stay home and try to have fun.
But they're willing to get out a little bit more this year, and that'll be good for jobs as well, that that should help strengthen the economy in terms of creating jobs for people in the hospitality industry, restaurants and so forth.
CONAN: Let's go next to Thomas, and Thomas on the line with us from Iowa.
THOMAS: Good afternoon. I just want to make a comment. We just arrived back home from a trip to New Zealand, and we don't really have a choice just to drive obviously. But we noticed this time around that, not only the extra fees going up, like carry-on bags and the checked luggage are increasing, but also it's more and more difficult with family, young children. We have two young children. And it used to be where they would let family members on a plane first to get situated and sorted.
Well, now they're even cutting that out, some airlines. It just makes it more difficult than I've ever used to be, and I guess I wasn't quite sure why. It doesn't cost the airline money to let a young family board the plane early, but yet they're eliminating that now.
CONAN: Well, they are selling the privilege to board the plane early.
GEEWAX: Right. That's it. The thing is they are trying to put a price tag on just about anything that you like. If you like to get on early, there's going to be a price for that. If you want more legroom, if you want to take another bag, just about anything that you want, they're going to find a way to stick a price tag on that, that little bit of extra comfort.
CONAN: In the story you filed for our website, npr.org, Marilyn, you noted that Frontier Airlines is going to charge up to $100 for one carry-on bag for any customer who fails to book directly through the website. So your carry-on, not the check bag, your carry-on bag, 100 bucks.
GEEWAX: Boy, that's a tough one. I wonder if that one will stick. The - Frontier says it's going to add that fee for this summer, and we'll see if they can keep up their business. But they want you to come only through their own website, not using third party transactions. That way...
CONAN: Not Expedia or one of those.
GEEWAX: Right. You know, the one at Orbitz or any of those. They want to steer you to their website. And also, they just basically want to discourage you from bringing carry-ons because there has been a real surge, as you can imagine. With all these fees over the years, people have learned to kind of stuff everything into that overhead and then jam it up there and a lot of tussles on flights. It's tough for the flight attendants because there are always people jockeying to get those bags up there.
And if they could discourage that, they would. It's funny, I've seen on websites, there are these wearable luggage companies now where you can get a coat that has really, really big pockets, and you can just sort of try to stick all your luggage onto your body and then walk on to the plane wearing your luggage. So that's a trend.
CONAN: If you want to read Marilyn's - and, Thomas, thanks very much for the call.
THOMAS: You're welcome. Thank you.
CONAN: And if you wanted to read Marilyn's piece she wrote after her return from the A4A Conference, you can go to our website, npr.org, click on TALK OF THE NATION. And let's see if we can get next to - this is Joe, and Joe is on the line with us from San Mateo in California.
JOE: Hi. Thanks for taking my call. I am planning, this year - or this summer rather - to go to Europe. I was awarded a scholarship to study Czech in the Czech Republic for a month. And this is my first time I've really gone out and started pricing tickets, and one thing that struck me in particular was the difference between what the airlines call the fare and then the fee and taxes.
On a flight to Europe where I am trying to do an open-ended ticket, well, multi-city ticket through London and then to Prague, the fare was about $1,700, half of which is what they considered the fare, and then half of which was fees and taxes and so forth, which I thought was kind of interesting. And I, you know, I wonder, you know, if that's different or if that's an increase. Is that something new?
GEEWAX: These fees have been just continually going up, and some of them are new because every time they think of something new that they could charge you a fee for, it shows up. As I said, this trend really began in 2008 as the recession was deepening, and we've seen it growing all the time. Well, one of the big fees is - has to do with change fees. You know, they are now up to as much as $200 to change your fee - it's not even...
GEEWAX: ...you know, to change the flight. It's just such a high fee that it's just not worth it anymore. So you end up having to buy a whole new ticket. So that's also another huge source of revenues for the airlines, and all of these things add up. And, of course, governments are looking for new revenue streams, so there are an awful lot of taxes that get added to flights. But, you know, Neal, if you think about it, when you go to a restaurant, there's a sort of a list price on meal.
But then when you find out what the taxes are and the, you know, and then $2 for a cup of coffee or $5, whatever they want to charge, by the time you're all done with it, it's a great deal more than what you were thinking of originally. So I think we see that in a lot of different formats, whether it's going to a movie theatre and finding out you're getting this $6 popcorn, you know? It - every...
CONAN: (unintelligible) more, it's twice as much.
GEEWAX: Right. Well, every industry has its way of boosting its profits because they try to break even on their core business and then make their profits on these add-ons. And that's what we're - the airline industry has figured out. And that's why they're starting to see a little bit of a brighter future for themselves.
CONAN: Joe, have a great trip.
JOE: And can I make this one quick note? Also, our family is also going to go to Wisconsin on an annual trip from the Bay Area and that hasn't changed. And so I guess we're part of the trend that's incrementally increasing our travel.
CONAN: OK. Thanks very much for the call.
CONAN: We're talking with Marilyn Geewax about the projection of this summer's air travel. You're listening to TALK OF THE NATION from NPR News.
There's another big variable in this equation for the airlines, Marilyn, and that's the price of fuel and oil prices going down.
GEEWAX: Yes. They've seen some, at least, a better trend line. Remember at the beginning of the year, we are all very concerned about gas - gasoline prices. If you were driving car it was pretty horrifying. And back in February, early March we saw the prices going up, up, up. And now they backed off. I think that's still very high, but it's basically the same story for the airlines.
They were very concerned about the volatility and the rising oil prices. And now, we, sort of, settled into a kind of an - I wouldn't call it a great range. I mean, from the airlines point of view, they certainly wish jet fuel were cheaper, but it sort of stabilized at a level that they feel they can work around as long as they can keep up enough people traveling this summer.
And, of course, one of the things they've been concerned about is the government - if Congress would make life a little bit easier for them. But one of the things they're worried about this spring was the sequestration. You may remember that problem.
CONAN: Sure. And people stopped flying because they were worried about big flight delays.
GEEWAX: Right. That was the situation where Congress was - had ordered some cuts in spending. So they were automatic across the board spending cuts that resulted in the FAA saying that they would have to furlough air traffic controllers. That situation went on for about six days in mid-April.
And what happened was lots of air traffic controllers were at home instead of in the towers. And as a result, there was really - there were lots of flight delays. The industry says there were 7,200 flight delays that affected about 600,000 people. So the big concern there was that, if that continued, if they were going to have both higher jet fuel prices and flight delays, boy, that look kind of scary.
And now, both of those situations seem to have been resolved. Congress took some action, along with White House, they all agreed to ease up on those air traffic controller furloughs. They're still spending cuts but they're just hitting in a different way. So the flight delays have gone away as a result of that. And you're seeing this - just sort of more a stable environment for the airlines.
CONAN: Let's go next to Nonny(ph). And Nonny with us from New Bern in North Carolina.
NONNY: Hi. I was just going to comment that, you know, a lot of people - you might think that the airlines don't care at all about the customer any more, but I just recently found that they're completely the opposite.
We're not planning to travel this summer, but recently my father-in-law had a heart attack and most - my husband and his brother had to travel by air, very suddenly. My brother-in-law went online. His ticket ended up being a $1,000. My husband called the airline explaining his problem. Ended up flying out of a very small town airport, which is typically much more expensive for less than $200. So it's, you know, they were willing to work with us when they knew what was going on.
GEEWAX: Well, that's a good thing about an upward spiral like this, where things get a little bit easier for the airlines and the employees, I think, can feel a little less cranky.
You can imagine, if you were an airline employee in 2008, '09, '10, it was awful. There were lots of layoffs, lots of mergers, lots of bankruptcies. People, you know, it's kind of hard to come and feeling cheaper everyday when your job is in such turmoil. And now that things have, sort of, smoothed out a great deal, what the surveys are showing is that customers would like someone to maybe smile at them. And the workers are a little bit more inclined to smile. So the J.D. Power and Associates did this survey of how people feel about the airlines. And also, you know, there are - they keep track of customer complaints about things like mishandled bags and all that. Every measure that I could find, of customer satisfaction, it looks like things are getting a little bit better. The customers are seeing a few...
CONAN: From a low bar but moving...
GEEWAX: Right. And that's not to say - believe me, I've been on many flights, packed there in, you know, coach class and it's pretty darn miserable, but not as miserable as it used to be.
CONAN: Well, there is a sunny. Nanny, how's your father-in-law doing?
NONNY: He's doing wonderfully great, great. Full recovery.
CONAN: Glad to hear it. And glad to hear that the - your family members got there in time to be with him at the moment of crisis.
NONNY: Thank you.
CONAN: Thanks very much for the phone call. And, Marilyn, so things are slightly less miserable than before.
CONAN: Always good to have you on the program. And a real sunny forecast for this summer.
GEEWAX: It's great to be with you, Neal.
CONAN: Marilyn Geewax is NPR's business editor - senior business editor - excuse me - I wouldn't want to miss that. Tomorrow, it's TALK OF THE NATION: SCIENCE FRIDAY. Ira Flatow will be here. Jennifer Ludden will be your guest host on Monday and Tuesday. We'll see you again on Wednesday. Have a good weekend everybody. It's the TALK OF THE NATION from NPR News. I'm Neal Conan in Washington. Transcript provided by NPR, Copyright NPR.