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02 April 2013

Introducing FatAir - the world's first weight-based passenger airline ticket

In addition to causing pain at the gas pump, volatile fuel costs are causing a revolution in passenger air travel pricing. 

April 2, 2013 -- CNN's Erin Burnett reports on Out Front that Samoa Airlines has become the world's first passenger airline to implement a fare based on a passenger's body weight and baggage weight combined. The weight-based fare is the latest in a series of airline pricing grabs aimed at covering rising fuel costs. Spirit Airlines made headlines and raised tempers with travelers in 2012 by announcing a $100 fee for carry-on bags. Around the same time, United implemented a record high $100 fee for the second checked bag on transatlantic flights. As usual, the other big carriers followed suit with their own maze of increased fees.

Samoa Airlines' weight-based fares boldly reinforce a growing trend. From healthcare costs to food prices, consumers are increasingly picking up the bill for systemic sustainability problems that went unnoticed in the bygone days of cheap energy and strong economic growth. The immense threat posed by long-term impacts such as climate change historically has little to no impact on business. Weight-based fares may be the first of many near term pricing strategies that finally motivate changes in the way we address our global fossil fuel addiction.

The unprecedented intensity of these new fee models means that shopping for the lowest fare becomes riskier and more complicated for consumers. For example, the impact of today's bag fees can easily double the cost of a domestic airline ticket. Consumers must expend additional effort to carefully compare fare policies and compute fees while shopping around.

Triple digit airline baggage fees are simply an indirect surcharge on fuel -- last ditch fees designed to postpone the destruction of airlines' financial health as oil prices fluctuate, trending ever higher.
The New York Times reports that fuel costs will cause airlines' profits to drop 62 percent this year. Also according to The Times, fuel costs now exceed 30 percent of airline operating costs. Carriers are doing radical things including
buying up oil refineries to get a handle on the problem.

As energy costs become a larger proportion of total costs, businesses adapt to maintain profitability.  They either cut costs or raise prices. Facing dramatic fuel cost spikes, all energy-intensive businesses are desperate to bury costs in consumer prices without impacting sales. Airlines face especially critical sustainability challenges.
Because of their energy-intensive operations, airlines are the business world's canary in a coal mine for rising energy costs.
Flight schedules are already ruthlessly optimized, safety is a fixed cost of doing business and myriad regulatory costs make operating in the air industry very expensive. When the price of energy rises, airlines will be the first businesses to reflect the increased cost in consumer prices. Because there is a practical limit to what individuals will pay for a flight, it is inevitable that airlines will invent new ways of raising revenue while keeping apparent ticket prices low. It's the only way to keep seats occupied.

Although major airlines' pricing models are not yet based directly on weight, they might as well be called "FatAir" 

Today we fly tons of excess baggage weight while subsidizing fuel costs through increasingly random fees instead of tackling the problem head-on.  Implementing weight-based fares would create a more transparent fee structure when applied to baggage and possibly even passengers and carry-on items.

Critics of pricing models that peg fares to passenger weight call the practice discriminatory and unethical. Climate science, basic physics and simple economics all support weight-based fares. The dignity of passengers can be preserved through smart implementation, that is if the TSA inspectors don't first strip away what little dignity the flying public clings to.

While studying Marketing at Penn State I took a "green marketing" course in the Smeal College of Business. For our final project we created business plans to address critical environmental problems. One of the project teams developed a fictional airline concept called "FlyLight." This airline would essentially put passengers and their luggage on a scale and compute a ticket price or discount based upon weight. Lighter passengers who traveled light would pay substantially less for a ticket than heavier passengers or those who packed heavily. It would all be settled discretely using a coded pricing model that leaves actual pounds and ounces to the computers to crunch in private.

The idea, while socially unsettling, made financial sense with gas prices around $2 a gallon. Today it seems inevitable that we'll see a form of weight-based charging for consumer air travel.  The status quo just is not working.

$100 baggage fees are a lousy, deceptive way to allocate energy costs to passenger ticket prices 

Charging fees for services that were once complimentary represents a desperate and lazy tactic that allows airlines to profit from confusing pricing and marketing without making critical sustainable operations changes that address the long-term fuel cost issue.

Peel back the flashy advertising and all that separates passenger air travel from the air cargo business is a bag of peanuts and a seatbelt. 

From an energy cost perspective, moving people through the skies is no different than moving cargo. Passenger airlines must take cues from weight and volume-based charges that have long been the norm in the cargo business.

Airlines need to create bold new pricing strategies that directly relate to out-of-control fuel costs. The move by Samoa Airlines to charge fares tied to passenger weight is a bold, controversial but inevitable move. Will it take $500 bag fees to see the major carriers take similar action to end today's broken fee-based pricing model?

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