There’s a pretty good article in today’s NY Times titled Seating Game: You Pay to Play that describes the various approaches airlines are using to boost revenue with added fees. In this case, the article talks about the recent trend for charging different prices for different seats based on location (aisle, window, middle, exit row, etc.).
According to the article, “…airlines are still experimenting with how much extra they can charge for seat assignments, which currently range from $5 to $50 or more for a domestic flight. Seat fees generally fall into two categories: the extra $6 to $20 AirTran Airways and Spirit Airlines charge passengers to reserve any seat (rather than be assigned a random seat at check-in); or premiums other airlines are charging for more desirable seats, like those with extra legroom.”
While some of the large carriers (Continental, United and US Airways among others) are pursuing the premium seat approach, others like Southwest and British Air are charging extra to reserve any seat before check-in. Some are even doing both.
While these policies may bring in added revenue in the short run, I think the airlines need to be cautious about how many times they try to ‘nick’ the traveller with added fees. There are a lot of travelers out there (present company included) who will tire very quickly of the multiple fees added on to the base price of a ticket. Behavioral economics and loss aversion teaches us that multiple fees are not cumulative – the more fees you add (translated into ‘losses’), the more pain is experienced. Three fees that add up to say, $50 feel a lot worse than a single $50 fee. Because of this, people will be willing to pay more for a ticket that includes only one added fee rather than a ticket than may, in fact, have a lower overall price but one that includes multiple added fees.
Here’s the takeaway. The airline industry needs to think hard about the long-term effects of any new pricing model. Adding extra fees to enhance short-term revenue gains might open up the opportunity for a competitor to take advantage of charging the traveler a higher overall price but one without the extra fees.
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