Allegiant CEO Calls Bag Fees a ‘Revelation’

In a wide-ranging interview with Ben Mutzabaugh at Today in the Sky, Allegiant Airlines CEO Maurice Gallagher tried to explain his airline’s approach to airfare, which includes charging a lot of fees. Here’s what he had to say:

On the subject of customers finding it “hard to figure out what the total fare is going to be when they book on Allegiant,” Gallagher said,

“Our seasoned customers that have flown us understand how we do things. And, the first-time traveler, it may be different than what they’re used to. But, again, we charge for services that we render when you’re buying the ticket. If you want to go to the airport and buy our fare, you can get exactly what is in the ads. We offer that to people.

[If] you go to a concert and you buy your tickets online, you buy those two $50 tickets [and] you end up with fees and the like over and above that [$50 base price]. It’s just a means of doing business today [and it’s] important for us as an industry to cover our overhead. And our industry has a revenue shortfall. We need to get more revenue. So we’re all looking for ways to enhance the revenue piece.”

But the Ticketmaster comparison doesn’t really hold. What Gallagher is ignoring here (and as one commenter at Today in the Sky pointed out), is that Ticketmaster acts as a middle man between the concert venue and the customers, and charges a fee for the so-called services it provides.

At the crux of all this is that Allegiant charges a booking fee when customers book online, but charges no fee for reservations at the airport.

“Looking back on our approach to things, the airline industry historically used to charge at the airport and give it away online. We thought it through, and we really have come about things in a different fashion. We reversed that logic because, when you have 90 percent of your activity online, you have a big overhead with our computer staff and all the overhead that goes with keeping that up and enhancing the systems [that we use to promote the company and its services]. It takes a lot of expense to do that.“

Fair enough. But let’s go back to the Ticketmaster metaphor Gallagher used. Allegiant, unlike a concert venue, sells its own tickets itself, and while it incurs the various costs Gallagher describes, the idea that it needs to charge a separate fee for “services that we render when you’re buying the ticket,” a la Ticketmaster, is completely artificial. Why not just roll these overheads into the cost of the ticket? Adding a fee is just a way to “enhance the revenue piece,” as Gallagher says. It allows the airline to keep its advertised fares low while cover its overhead (and then some, I’d assume) with these extra fees.

Baggage fees are a somewhat more complex issue. “We used to carry 1.1 bags per customer in the belly [of our planes]. We now carry 0.5 bags per customer. So not only do I have a revenue stream, I’ve driven people’s behavior to lower my bag count, which means I have fewer expenses for lost bags, for damaged bags, for people on the ground. And this is true throughout the industry. And it’s a revelation. American, in particular, a year or two ago made a comment to that effect.”

Unlike the booking fee, which is pretty much a straight-up revenue grab, bag fees are emerging as a way to pressure down costs and cover overhead. By deterring people from checking bags, the process of checking bags becomes leaner, cheaper, and more competent, with the only major downside (and it is major) being a negative customer experience.

But if you ask Gallagher, all the fees are worth it if Allegiant can offer low fares. “The overall cost of our travel, when you take from beginning to end what someone pays [on Allegiant] versus where they could get it anyplace else competitively … we’re half [as much].”

I highly recommend you check out the full article, of which I’ve offered only highlights here. Say what you will about Allegiant’s policies, but it’s refreshing to get such an honest perspective from an airline CEO. The interview appears in two parts: Part one is here, part two is here.

Readers, what do you think about Allegiant’s approach to flying? If larger low-cost airlines, such as Southwest and JetBlue, can offer a similar service with fewer fees, why can’t Allegiant?