Corporate travel buyers used to consider elite status in airline frequent flyer programs a soft dollar benefit, but as American Airlines, United Airlines and US Airways now shield their most frequent travelers from fees to check their first piece of luggage, such negotiated deal sweeteners are proving to have hard dollar value.
As frequent flyers bemoan mileage redemption opportunities, blackout dates and new fees for redeeming miles, the airlines have found a way to add value to their frequent flyer programs: Create new fees and then shield your highest flyers from them.
"Instead of following the old approach of leaving the waivers and favors as the last item on the list to negotiate, it automatically bumps them up in terms of priority," said TRX Travel Analytics vice president and general manager Dan Pirnat. "However, the focus for travel buyers is still going to be on the actual fare paid. The way most corporations track savings in the air category, these baggage fees will largely fall off the radar."
"Our intent was to create more value for the corporate traveler and the AAdvantage program as well," said Frank Morogiello, vice president of global accounts at American Airlines, the first carrier to implement a $15 first-bag checkin charge. "It's made the AAdvantage program an even more valuable asset, because if you're Gold or above, you don't have to pay the fee."
Several carriers and consultants said the first checked baggage fee disproportionately affects leisure travelers, as corporate travelers are less likely to check a bag and more likely to hold elite status.
"Leisure travelers tend to separate the cost of the ticket from the cost of these various additional charges into different buckets," Frank Schnur, vice president of consulting for Advisory Services at American Express Business Travel, said. "Whereas the corporate travel buyer looks at the total cost much more. It will be interesting to see if the airlines will be more flexible with the corporate travel buyers."
Corporate travel buyers in BTN's most recent airline survey, released last November, gave low marks to carriers' ability to provide soft-dollar benefits, including special VIP treatment for frequent travelers and elite status designations. That category last year garnered the second-lowest score, after flexibility in meetings price negotiating (BTNonline, Nov. 19, 2007).
However, Management Alternatives president Carol Salcito said most carriers are willing to work with their best clients on providing such benefits. "The airlines have been very generous in that regard, especially if you're moving from one carrier to another, in matching the status," Salcito said. "The airlines are very good at that if you're a good compliant corporate client. The ones who are screaming the most are the ones who aren't performing, because they're not getting these soft perks."
Corporate flyers shielded from the $15 charge may face new hassles at the airport or in the aircraft cabin, as many expect an increasing number of flyers to avoid the new fees and vie for carry-on space.
However, during June's Merrill Lynch Global Transportation Conference in New York, American and US Airways said they are working to address such concerns. American Airlines CEO Gerard Arpey said, "The biggest challenge is obviously more people will be motivated to carry on a bag in an environment where you're charging for it." Arpey said American would "do our best to make sure that problem doesn't manifest itself at the gate or on the airplane," placing staff to monitor travelers at the gate and through TSA checkpoints.
US Airways president Scott Kirby also noted the operational risk involved with the first-bag fee. "When you have $300 to $400 million on the table, you're willing to take a little risk," Kirby said, adding that the carrier is investing in technology and personnel to smooth the transition to requiring cash for a first bag. He said the airline would implement the policy gradually, "giving ourselves time to work out kinks in the system."
United said the first-bag policy would impact about one-third of its passengers and, coupled with its $25 second-bag charge, earn the carrier $275 million annually. American also expects "several hundred million" in additional revenue, though it anticipates only one-quarter of its customers will be subject to the first-checked-bag charge.
Just hours after United Airlines matched American Airlines' first checked baggage fee in mid-June, US Airways jumped on the bandwagon with plans to charge customers $15 for their first piece of luggage on domestic economy and some short-haul international itineraries. American's policy went into effect on June 15, US Airways' will take hold on July 9, and United's goes into effect on Aug. 18. All legacy carriers recently adopted a fee for a second checked piece of luggage, but Continental, Delta and Northwest have yet to implement a first baggage charge. Continental CEO Larry Kellner said the carrier would weigh operational issues.