Get Ready for More Airline Fees
Last week, a new law by the Department of Transportation requiring airlines to include mandatory government taxes and fees in advertised airfares went into effect. All airline companies such as United Continental (NYSE:UAL), JetBlue (NASDAQ:JBLU), Delta Air Lines (NYSE:DAL) and US Airways (NYSE:LCC) must now comply with the new regulations.
Southwest Airlines (NYSE:LUV) and Spirit Airlines (NASDAQ:SAVE) are asking the U.S. Court of Appeals for the District of Columbia to block the proposed flyer protection changes. In the meantime, Spirit is already passing on new fees to flyers in response to the new law. In order to cover costs associated to the new regulations, Spirit customers must now pay a $2 each-way DOTUC (Department of Transportation Unintended Consequences) fee.
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One of the new regulations enacted by the DOT enables flyers the option to change or cancel a reservation within 24 hours of booking. Spirit claims that by reserving seats for customers who have yet to commit, the airline will lose inventory and money. Thus, the new $2 fee seeks to recover this loss and give people one more reason not to fly.
The new DOT regulations took effect January 26, so it is unlikely that Spirit has hard data to prove the monetary effect. However, CEO Ben Baldanza said, “People love the idea of not having to commit to a reservation, but this regulation, like most, imposes costs on consumers. Wouldn’t we all like to eat all we want and not get fat? Regulators like to try to sell the idea of this rule, but have ignored the cost impact to consumers. You simply can’t eat all you want without consequences.” Airlines may find that there are consequences to never ending fee increases.
With a sluggish economy, pension plan expenses and high oil prices, it is a difficult time for airlines. As the company restructures in bankruptcy, AMR Corp. (NYSE:AMR) announced on Thursday it will eliminate 13,000 jobs in order to cut operating costs by $2 billion and boost revenue by $1 billion.
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