US Airways not likely to cancel added fees

PHOENIX -- When oil prices were hurtling toward $150 a barrel earlier this year, US Airways and other major airlines looked everywhere but the seat-back pockets for extra money.

They started charging passengers fees to check bags, reserve prime seats, even, in US Airways' case, to order a can of soda.

With oil prices now at half the level they were this summer, the big question is whether airlines will retreat from the fee parade.

The short answer from US Airways CEO Doug Parker: No way.

In fact, the Tempe-based airline recently started selling a larger percentage (25%) of its coach seat assignments and plans to replace the standard-issue pillow and blankets with a reusable $7 inflatable pillow-and-blanket set later this year or early next year.

Parker called the airline, the most aggressive U.S. carrier on the fee front, "big fans" of so-called a la carte pricing.

"You never say never because competitive forces could eventually force us to turn back, but we certainly hope that's not the case and don't believe it will be," he said.

"We're really excited about how this is playing out for the airline. It's a better model for an industry that's been struggling for a long time to find a model that works."

US Airways has said it expects the fees to generate an extra $400 million to $500 million in annual revenue, higher than initial estimates. It likely will give more details when it releases its third-quarter financial results on Thursday.

The annual windfall for the industry is estimated to be about $3 billion, according to JPMorgan Chase. And it comes without the participation of Southwest Airlines, the country's largest carrier by passengers, which is sitting out the fee frenzy and touting its stance in an advertising campaign.

Parker said airlines have simply been including too many things in the price of a ticket for too long. He said research shows passengers' biggest priorities are low fares and getting where they're going on time and with their bags, with as little hassle as possible.

"Somewhere along the line, we in this business decided what that meant was, 'We'll give you a free soda.' No other business I know of does that as part of their product," he said.

Similarly, airlines have treated every seat in coach the same, something you don't see, for example, at Chase Field for a Diamondbacks game, Parker said.

"They're not the same, everyone knows they're not the same. So we should price them differently," he said.

With airlines' fuel bills out of the stratosphere, Parker concedes the fees are no longer a financial necessity.

"There's no doubt we put this in place because oil was $130-$140 a barrel. We were looking at everything we needed to offset those increases," he said. "Now that we've done it, I actually believe that we have stumbled on to a product that actually is the right product for a large number of airlines."

He said the airlines' initial concerns about customer backlash, long lines at the ticket counter and stuffed overhead bins were unfounded.

That's not to say customers haven't complained. The airline cited gripes about various fees as a reason its customer-complaint ratio remained the worst in the industry in August.

At the same time, though, it cited a huge decrease in the number of checked bags as a big reason its baggage-handling performance improved. Since it started charging for the first and second checked bags ($15 and $25, respectively, each way, per person), the airline has seen 25% fewer checked bags.

Parker said one of the most surprising benefits has come from the charge for soft drinks. The airline isn't selling the amount of soda it expected, but that has turned out to be a good thing, he said.

"What we found is most of our customers say 'No, thank you' when it's $2," he said. "When it was free, everyone said yes. The result was a lot of trash in the cabin, carts constantly in the aisle and a product that I think was arguably more congested and less comfortable than the product we have today."

He said US Airways, which overlaps more with Southwest than any other major carrier, has seen no evidence customers are leaving it for Southwest.

Southwest CEO Gary Kelly said last week that it's too early to tell if Southwest's no-fee approach "will move a large number of passengers Southwest's way."

He said the airline believes it will earn more customers from the no-fee approach than it would from fees.

"The way we see it this is just a gift from our competitors and we're taking full advantage of it," Kelly said.

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