A few days ago I read an article on MSNBC that had me scratching my head.  Basically, American Airlines came out and tried to justify their $15 per checked bag fee, and claimed that the new fee would affect fewer than one in four customers this Summer.   They also claim that the fees won’t result in longer lines at the ticket counter.

Right.  I don’t believe them, but that’s really not the point that really got me steaming.

The airline then went on to try and passify its customers by trying to spin the fee as a “bargain”.

The airline defended the fee, saying it was a bargain compared with the cost of shipping a 45-pound bag overnight on a package-delivery company. It said the cost of sending a bag from Dallas to New York would range from $150 to $230 or more. -Source

What an absolute joke!

If they want to use that rationale to try and get me to accept the new checked bag fee, let’s turn that same rationale around and see how much it would cost to ship me, a 180 pound guy, and my checked bag (using their own 45 pound figure) from Dallas to New York via UPS overnight air:

The result: $1,162.58 one way.

Now, lets look up the lowest fare on American Airlines that I can buy today such that I get to New York by tomorrow.

The result:  $433 fare, including the $15 per checked bag fee, because let’s face it, if you take a tube of toothpaste, you’re going to check a bag.

So American Airlines is trying to tell me I’m getting a heck of a deal by paying $15 to check a bag as compared to shipping it via UPS, yet I have to listen to them complain about rising fuel costs when their fares are 35% of what it would cost a shipping company to ship human beings in the belly of an airliner.

Does that make any sense to anyone?

The first rule of business.

It has become increasingly apparent to me that the airline industry is the most poorly run industry in the United States (with a few exceptions).

The first rule of any business is that it must make money on every single product it sells.  In an airlines case, that product is its seats (there’s the cargo side of things as well).  Fundamentally speaking, the airline must lump together all of the costs of doing business plus a fudge factor for not being able to account for all business expenses and unsold tickets, and divide that by the number of seats it offers.  That’s the absolute minimum ticket price to be offered, and not a penny less.

But we’ll lose market share!

The airline executives are instilling upon employees that market share is everything.  In fact, this way of thinking has filtered down to those a bit lower in the food chain.

About six months ago I was engaged in a discussion with an airline manager friend of mine regarding increasing costs of jet fuel.  He proceeded to blame the oil companies for price gouging, blamed the government for not stepping in, and blamed the speculators for driving up oil prices.

I then asked him why, when his companies cost of doing business increases, they don’t simply increase the price of a ticket?

His answer?  We can’t increase ticket prices, we’d lose market share!

The airlines have forgotten about the first rule of business.

Piss-poor management in the airline industry will be the root cause of an airlines demise.  Not fuel costs.

For the sake of a free market, and capitalism, I believe all airlines that have displaced the first rule of business for market share should be allowed to fail.  They’ll run out of money long before they run out of market share.

Tags: airlines | Business | management

Leave comments below. Subscribe to Comments