|by Jason Steele|
The airline industry in this country is going through a host of changes. They are trying to work out a business model that allows them to compete with each other while withstanding the soaring price of oil. In one corner, you have the remaining legacy carriers, United, US Airways, Delta, and American. In another corner, you have the discount carriers such as JetBlue, Frontier, Alaska, and Virgin America. Finally, you have Southwest airlines, which is unique for a number of reasons.
The legacy carriers are addicted to fees. They can call it unbundled, ancillary revenue, or even happy fun charges, but it doesn’t change the fact that they are trying to charge money for things that were once free. Their hope is that while pissing off many customers, they will make more money from the fees than they will lose from alienating their passengers, assuming they have paused to thing about their passengers in the first place. Southwest has taken the opposite view, holding steadfast to their offer of two free checked bags, no change fees, and rational limits on the fees they do charge. That has left the other discount carriers left to choose which path they want to follow.
What Does This Have To Do With Denver?
Denver is unique in the nation in that it has a legacy carrier, United, a discount carrier, Frontier, along with a major Southwest airlines presence. You can think of Denver as a laboratory for the future of the airline industry in the United States. In the past week, we here in Denver have witnessed some significant developments that are likely to foreshadow changes to other airline across the country.
Frontier Cuts Fees
Frontier Airlines operates a major hub out of Denver International Airport. On April 13th, they announced several new policies designed to enhance their customer service and reduce fees on passengers. They are eliminating change fees on the higher two of their three fare classes. On their lowest fare class, they are reducing change fees to $50 from the previous $100. They also announced that they would reduced checked bag fees by $5 on their lowest fare class (their higher fare classes come with two checked bags). Finally, to the joy of Colorado visitors and cyclists all over over the state, they are accepting bicycles as checked bags with no additional fees. By comparison, United charges $100 and Delta charges $200 each way.
In response to Frontier’s move, United reacted as only they can, by raising fees That’s right, on April 18th United announced that it is sticking it to the best customers by raising fees on frequent flier awards. There is a “close in” booking fee of up to $75, an award change fee of the same amount, and a “mileage redeposit fee” of up to $150. The fees decline as you reach higher levels of status in their program, with top tier members getting the fees waived.
In light of these moves, it came as no surprise today when it was announced that Southwest Airlines surpassed Frontier in terms of traffic at Denver International Airport. Despite Frontiers large presence in Denver, Southwest has surpassed them only 5 years after it flew its first flights in and out of the airport.
What Does This Tell You
The major legacy carriers, such as United, are still not able to think like a customer. They are loosing passengers by gouging them with fees. Rather than grow their business by providing a better product, they have chosen to merge with each other to maintain their size. Yes, Southwest and AirTran are merging too, but both airlines were in growth mode in contrast to the legacies. Frontier, like all the discount carriers must choose between passenger friendly growth, and fee friendly decline. After years of following United down the road to fees, it does seem as if Frontier is trying to win customers back by providing lower fees on their product and increased customer service.
The race is on for the loyalty of American passengers. Southwest is in the lead, but other discount carriers appear to be making moves to compete. The legacy carriers will continue to see their customer base shrink to include mostly business travelers who never pay for their own expenses. If you want to know how all this is going to end up, just keep following what is going on in Denver.