Add-on Fees. Good or Bad?
Below is the headline and lede of The New York Times story about the Ryanair add-on fees uproar that triggered this column:
Ryanair, Scorned in Europe, Turns on the Charm
LONDON — Charging 60 euros, or $82, for carry-on bags deemed too large to go in the cabin. Assessing a penalty of €70, or almost $100, for not checking in online. Bombarding passengers who take a 6:15 a.m. plane with in-flight announcements hawking everything, including snacks, lottery tickets and smokeless cigarettes.
Michael O'Leary, the chief executive of the budget airline Ryanair, has vowed to address the criticisms that have made his carrier, Europe's biggest and most profitable, its most reviled.
—Nicola Clark, Oct. 28, 2013
Have a look at the first image in the media player at upper right. Ryanair CEO Michael O'Leary comes off as the quintessential practitioner of nitwittery. Naturally customers feel ripped off when their wallets are pried open by this buffoon.
Quite simply, add-on fees can be explained by good ole-fashioned professional P.R.
Whining Over Fees
After Peggy and I returned from a recent trip, we had dinner with a lawyer friend. I found myself bitching about US Airways charging us an extra $25 per checked bag. Want choice seats on US Airways? Expect to pay an extra $5-$99. Soft drinks and coffee or tea are free, but food and alcoholic beverages are extra.
Our friend's sane, soothing advice:
Think of airfare as the starting point. For example, a train ticket or a bus fare guarantees you a seat from Point A to Point B. That's what you contract for. Everything else is extra—a drink or sandwich in the café car, a red cap to help you with your bags or a sleeper.
When I thought about it, this made absolute sense.
Traveling one-way between New York and Philly, Amtrak is the way to go. Fares (for seniors) run from $45.05 to $191 for premium seating on the deluxe Acela.
Hate Amtrak prices? We have friends who are hooked on the no-frills Bolt Bus. One-way cost (all ages) is a paltry $12 or $13. Actually you enjoy two frills: plenty of legroom and free WiFi. However in a traffic tie-up, the trip can take three hours or more. (See the second image in the media player at right.)
Reasonable Fees vs. Unreasonable Fees
I no longer have a problem with being charged $25 for a checked bag. TSA personnel, baggage handlers, gas and depreciation for the luggage vehicles—all cost money. Why shouldn't I pay?
When I grew up and first went into business, the extra airline goodies were fabulous. (See the third image in the media player at right for a sampling of free airline service in the 1950s and 1960s.)
What is the cost of serving meals to all passengers?
In 1987, American Airlines CEO Robert Crandall became famous for ordering the removal of one olive from every salad. Saving for the airline: $40,000 a year.
Why should airlines feed me free? Trains and buses don't.
Incidentally, on overseas travel, most airlines serve free meals and bags fly free. But otherwise airlines desperately need add-on fees. Here are two quotes from Warren Buffet:
- ... despite putting in billions and billions and billions of dollars, the net return to owners from being in the entire airline industry, if you owned it all, and if you put up all this money, is less than zero.
- How do you become a millionaire? Make a billion dollars and then buy an airline.
Without the airlines, none of us working stiffs would have been able to do business or see the world. The airlines have changed all our lives.
In short, I consider airline baggage fees to be reasonable—along with charges for food and drink.
Know What Your Competitors Are Doing to Their Customers.
• Hotels: When [Steve] Lundin checked into the Casa Marina resort in Key West, Fla., on a business trip this month, the desk clerk told him he would have to pay a $14 "resort fee" on top of the room rate for his one-night stay. "She told me it was for parking my car, using towels at the pool, shuttle service to the airport, yada, yada, yada," he said. When he told her he had arrived by ferry and did not plan to use the pool, she only shrugged. —Melinda Ligos, The New York Times
• Law Firms: After the recession sparked a widespread revolt over generous law-firm fees, clients are increasingly raising objections to big bills for legal miscellany. Invoices for food, photocopies and legal research—items that once were rubber-stamped by companies—are drawing howls. As for charges for first-class flights? Clients are simply saying, "No more." Some routine costs, such as an attorney's cab fare to the courthouse, are minuscule compared with the huge sums lawyers bill for work on complex mergers or lawsuits. But other items, such photocopying, often pile up and can amount to millions of dollars a year for some big companies. —Jennifer Smith, The Wall Street Journal
• Credit Cards: A typical example works this way, according to Levin and Coleman: A customer charges $5,020 in merchandise and pays $5,000 of it by the payment-due date after getting the first bill. The next bill will include the $20 that wasn't paid but also $34.78 in interest charges on the entire $5,020.
If the customer had paid the entire $5,020, no interest charge would have been imposed. In short, credit card companies eliminate the grace period in which no interest is charged if the balance isn't paid in full every month. This practice hurts millions of customers who pay their bills on time, the senators said. —Kathleen Day, The Washington Post
Using Other People's Greed to Your Advantage
Peggy and I travel a fair amount. We do not like being nickeled and dimed. For example:
• I have been an American Express Card member for 50 years. After traveling abroad, Peggy has noticed a 2.7 percent "Foreign Transaction Fee" tacked onto every purchase we made. Everything is electronic. No extra work is involved. We are being charged $2.70 per US$100.00 for a wee spritz of electricity. Why would AmEx rip-off a customer of 50 years? Greed. They assume customers are too stupid and lazy to notice or care they are being screwed.
For months I had been receiving direct mail offers from Chase Sapphire Card.
I finally took a look at the thing and discovered in bold type:
NO FOREIGN TRANSACTION FEES
When you travel internationally, enjoy no foreign transaction fees on purchases you make abroad. Plus with the extra money you'll save, why not take in one more experience or pick up a few souvenirs for your friends back home.
Not only do we now use Chase Sapphire overseas, but I use it in the U.S. as well. My way of saying "Up Yours!" AmEx and "Thank you, Chase."
• A couple of years ago we stumbled onto Viking River Cruises and went on the Rhine. Okay, Viking is a bit pricier than Grand Circle, but they make us feel loved by giving us free what other cruise lines charge for:
—Free WiFi on all European and Baltic ships
—Free wine with lunch and dinner
—Free excursions with guides at every port
• Southwest Air has a USP (Unique Selling Proposition) it plasters everywhere: Bags Fly Free! (See the fourth image in the media player.)
The message: Fly with another carrier and you could be nicked for up to an extra $120 in fees—$240 for a couple.
This Is Visceral
I prefer hotels where WiFi and breakfast are free. All things being equal, I'll say "thank you" in advance by booking a room.
Takeaways to Consider
- Think of airfare as the starting point. For example, a train ticket or a bus fare guarantees you a seat from Point A to Point B. That's what you contract for. Everything else is extra—a drink or sandwich in the café car, a red cap to help you with your bags or a sleeper.
- Why should airlines feed me for free? Trains and buses don't.
- Free shipping is a powerful inducement to buy. Here are 20 Internet retailers offering to ship free.
- Marketers can win customers—and customer loyalty—by pointing out fees they do not charge.
- Marketers who charge sneaky hidden fees risk being found out and hurt by their competitors.
- Customers can be won over with freebies—long known in direct marketing as premiums.
- If one premium tests well, try two. And three.
- "Premiums and bonuses drive sales. Too often the premium is an afterthought. I think it's at least as important as the core product." —Dan Kennedy