Back in 2008 US carriers led by American Airlines began charging passengers fees for checked bags in rapid-fire progression. The charges were a survival mechanism adopted by the industry as record fuel prices skyrocketed to nearly USD 147 per barrel. But when fuel prices receded in 2009 and 2010 the bag fees remained intact, along with passenger angst over their perception of being charged unfairly for what they deemed was a necessary element of the travel experience.
As the fees became a permanent fixture, consumers altered their behaviour by pushing the envelope on carry-on bag limits, which resulted in an unpleasant boarding process that left passengers scrambling for precious bin space and flight attendants frazzled as they tried to aid passengers to squeeze the increased carry-on volumes into a finite area.
Now airlines are starting to recognise that a negative boarding experience alters a passenger’s perception of their brand throughout the entire journey, and a slight change is underfoot to expand bin space in an effort to ease customer frustration stirred by increasingly shrinking space in overhead bins.
Most of the US major carriers are in the midst of projects to increase bin space on a portion of their fleets either through a dedicated bin project or as part of a complete interior refresh to achieve a high level of interior commonality across their respective fleet types.
“We are trying ensure the customer boarding experience is so smooth it is otherwise unmemorable,” says Chicago-based United Airlines.
READY FOR RETROFIT
In April United began installing new bin doors on 152 Airbus A319 and A320 narrowbodies that will increase on-board baggage capacity for standard 21-inch roll-aboard bags by roughly two-thirds. The carrier aims to reduce boarding stress some customers endure from looking for precious bin space while searching for their assigned seat.
United cites three principle reasons for its decision to increase onboard baggage capacity on its Airbus narrowbody fleet: an improved customer experience; easing the burden felt by some flight attendants of being rushed at aircraft push-off; and improved maintenance of bin doors through fewer latches and hinges breaking as passengers attempt to squeeze bags into the smaller bins.
The carrier estimates a nine-month completion time on the Airbus bin project, with the work on each individual aircraft taking roughly 24 hours to complete.
To illustrate its point of the importance in improving the customer boarding experience, United cites a scenario where a passenger with carry-on bags is waiting at a gate area and hears an announcement that an aircraft has reached its carry-on capacity. The passenger is then informed he or she will need to tag luggage and check belongings. The result is already-disappointed customers upon boarding of the aircraft, which United concludes makes them less likely to remember any other positive attribute of the journey. “That is something we are trying to avoid,” the carrier says.
Another reason United opted to increase bin capacity on the Airbus narrowbodies was to ensure the bin sizes are relatively standard across its entire narrowbody fleet. With the exception of the Boeing 737-500s, the 737 narrowbodies and 757 models in the former Continental fleet have larger bins than the Airbus aircraft there were part of the legacy United fleet. United and Continental completed the final step of their merger earlier this year with the cutover to the Shares passenger service system, and once that transition was complete the Continental name was officially retired.
Standardisation is something not lost on the frequent traveller, remarks George Hamlin president of consultancy Hamlin Transportation. If larger bins are not prominent on a wide base of an airline’s fleet, those travellers will catch-on quickly and become frustrated if they travel on aircraft with smaller-sized bins.
BIGGER IS BETTER
American Airlines has recognised the importance of fleet commonality and has a nose-to-tail project underway on 76 of its older Boeing 737-800s to ensure interiors on those aircraft mirror those on its new delivery -800s. The carrier took delivery of its first 737-800 featuring Boeing’s “Sky Interior” in May 2011, and aims to complete the retrofit project on the older models in 2013.
As part of the retrofit project American is installing larger bins on the older aircraft to ensure bin space is standard across its Boeing narrowbody fleet. Bin areas on the new-delivery narrowbodies hold 48 additional bags compared with the older 737s, says American director of onboard products planning and design George Karayiannakis. “Customers want more overhead space as part of the passenger experience,” he explains. “From a customer perspective we want to make sure if they have a carry-on bag they have a place to put it onboard.”
Fleet commonality is also a driving factor behind installation of larger bins by Delta Air Lines on its fleet of 58 Boeing 767-300ERs. Delta is in the midst of a large-scale cabin upgrade across its widebody fleet, which includes lie-flat bed installations in the “BusinessElite” cabins, and on the 767-300ERs, larger bins that allow some commonality with Delta’s other international fleet types.
“Our refresh for the 767s was a great chance for the bin expansion,” says Delta. The carrier estimates the new bins featured on the widebodies should hold an extra 26 standard roll-aboard bags. No immediate plans are underway by Delta to install larger bins on other fleet types as the carrier explains it is “evaluating the potential to do more but we don’t have anything to announce at this moment”.
Phoenix-based US Airways, which is reportedly eyeing a potential hostile takeover of American, also has no immediate plans to install larger bins on additional fleet types after completing a project to expand bin sizes on its Boeing 757s a few years ago. But the new Airbus A321s the carrier is adding to its fleet to replace its Boeing 737 Classics have larger-capacity bins. The carrier accepted delivery of 12 A321s in 2011; 12 additional aircraft are scheduled to enter the fleet this year. US Airways has also installed two additional bins on its A330 widebodies, which the carrier concludes is a “nice customer enhancement”.
At present, United does not see a pressing need to retrofit is Boeing 767,777 and 747 widebodies with larger bins. The airline states depending on the aircraft delivery dates, many of those aircraft already have larger bins, and explains, “Carry-ons are less of an issue on long-haul flights”.
ANCILLARY REVENUE DILUTION
Carriers appear unconcerned over any potential lost revenue from their various bin expansion projects from baggage fees even as data from the US Department of Transportation show the country’s airlines collectively recorded USD 3.4 billion in 2010 from checked bag charges and USD 2.6 billion through the first nine months of 2011. For many carriers that charge for checked bags, the collections from those fees represent the majority their ancillary revenues. Baggage fees comprised the majority of the USD 537 million in ancillary revenues recorded by US Airways in 2011.
United stresses it has no concern about potential revenue dilution, as most customers that end up having to check luggage at the gate are not paying those fees in the first place. Delta concludes it cannot offer a meaningful answer to the question of potential lost bag fee revenue from the extra space in terms of knowing whether bags were brought onboard instead of checked. Noting bags still need to fit through Transportation Security Administration scanners a Delta spokesman states: “I don’t think you could think about bringing a big bag onboard instead of checking it because of bigger bins. They [the bags] have still got to get through security.”
But Hamlin warns that “nature abhors a vacuum”, and suggests that soon enough the larger bins will start to fill-up, as passengers attempt to defy carry-on baggage restrictions and push the limits of onboard capacity.
Unlike most Wall Street analysts Hamlin believes the product airlines should focus on selling is the “passenger in the seat”, and once airlines lose the economic leverage that customers pay in total costs, they embark on a “slippery slope”. He says the ultimate challenge airlines face is a problem in their fundamental pricing paradigms rather than managing add-on costs such as baggage fees.
JetBlue Airways has concluded that it attains a yield premium from its existing product, and does not see a necessity to start charging for the first checked bag. The carrier also believes managing the collection of fees could actually increase costs through additional staffing at airports and a potential lengthening of turn times.
As carriers continue their attempts to balance maximising ancillary revenues from product unbundling and bag fees, Hamlin also states he has been “waiting for the shoe to drop” on airlines attempting to allocate bin space for premium passenger use. Although attempting to avoid consumer backlash remains “in vogue”, Hamlin warns “that might not stop someone from trying it later”.
But United maintains its focus remains on improving the experience for passengers to ensure they become repeat customers. “We we’re working to build a better airline,” the carrier states. “We’re investing in products and services to encourage customers to fly with us again.”