According to industry analysts, the budget traveler is going to have to dig deeper to find discounts on airfare and hotels in 2011.

Travel Stocks On The Rise

Stocks for major travel companies began to rise steadily last summer, with some industry experts declaring “the end of the staycation”.  The Dotcom Travel Stocks index at tickerspy.com, which tracks the performance of companies like Priceline, Travelzoo, and Orbitz, has outperformed the S&P 500 significantly over the last 6 months.  Even the recent issues between American Airlines and online booking agencies haven’t seemed to scare investors away from OTA stocks.

More Fees, More Money

Extra fees are credited with making the major airline companies profitable again in 2010, and it seems likely they’ll continue pushing that strategy through 2011.  It’s estimated that $2.1 billion of the $3.84 billion in profits that airlines made between July and September of 2010 came from extra fees, with the largest percentages attributed to baggage and reservation change fees.  With more than half of profits earned from fees, it’s now wonder that travel pundits are trying to guess what new fees we’ll see in 2011.

Making Up For Lost Time

In addition to paying more fore airfare, travelers should also expect price increases for hotel rooms and cruises.  The biggest reason?  Companies need to make up for lost profits and drastic cuts made during the recession.  Hotels have struggled to make up for a drop in business traffic, with 2010 being one of their worst years.  But 2011 might show a slight increase in demand and a mad dash to get prices back up to pre-recession levels.

While increasing profits and rising prices sounds like bad news for the frugal consumer, it’s good news for travel companies that have struggled during the economic recession.

Photo Credit: D’Arcy Norman

In the wake of falling prices and fewer fliers, airlines seem hellbent on irritating their customers as a fiscal strategy.

Apparently, the outcry against adding fees to flights on specific high-traffic days during the holidays wasn’t loud enough, because Delta, American and United announced yet more such because-we-can fees in 2010. Delta and United have carved out no less than 41 flying dates between January and May to slap an extra $30 onto the ticket as punishment for going on Spring Break when everyone else does. All three airlines announced $50 surcharges for select flights on February 8. Odd day? Not to those flying home from the Super Bowl in Miami.

Guess getting reamed $12 for a hot dog at Dolphin Stadium isn’t enough insult to loyal sports fans.

“This is becoming kind of a grab” for passengers’ cash, Robert W. Mann, president of consultant R.W. Mann & Co., told Bloomberg. “Nickel and diming in the form of $5 and $10 bills is really where it’s going.” But is it good business? Ask hotels, which are backing off from charging fees for every little service.

And it’s not as if they don’t have other revenue streams to explore. For starters, prices are steadying now, according to FareCompare. Similar travel-management companies are also predicting airfares will continue to rise in 2010, putting an end to the free fall drop in revenue.

American Airlines will dip its toe into retail sales on U.S. to London flights, peddling Heathrow Express train tickets. Its new inflight wi-fi service will promote online buying from SkyMall. After all, if you have the credit card reader on the back of the seat, they will buy. “We wouldn’t invest if we didn’t feel comfortable it would provide a fair rate of return,”  John Tiliacos, American Airlines’ managing director of onboard products, told a reporter from The New York Times. Reportedly, Broadway theaters and the Walt Disney Company want to elbow in on the action to sell their tickets on planes.

This direction fits right in with the snacks for sale, luggage charges and headset fees.

Then there are the behind-the-scenes moves, such as American Airlines and ARC’s partnership to develop an electronic tool that i.d.s duplicate bookings. The airline estimates these errors cost it “huge sums of money,” and considering the sums that pass through these companies in the first place, that figure must be large indeed to rate that kind of label from executives.

Yes, the recession is a bitch. Yes, the airlines weren’t in the black anyhow when the economy tanked. But at some point in your scramble to survive, you have to protect your future. At least these alternative ways of raising cash allow the customer a chance to decline and provide an extra service for their money. Tacking on fees for the heck of it is just tacky.

Photography: Mr. Usagi, jonathanb1989, psyberartist (Flickr.com)

UA's idea isn't flying with the industry

United Airlines has found a sure-fire way to stir the pot this summer. Its announcement last week that the airline will no longer allow some travel agencies to use its merchant account to book United products after July 20 has heaped coals on officials’ heads.

Basically, a handful of agencies (no one has revealed just who and how many) will have to use their own merchant accounts to accept payments and then pay United in cash. The penalty for forgetting is $75 per ticket. Consultants like Robert Joselyn immediately said this smelled like a pilot program to shift the credit card fees and fraud liability to all travel agencies down the road.

And that’s just the opening volley. Among the anonymous comments posted at Travel Weekly within the first 48 hours of the bombshell:

• “With UA continually on the brink of another bankruptcy, what agency wants to pay with cash and take the risk of holding the bag??”

• “United seems bent on angering and alienating everyone they do business with – whether it be the passenger (I can’t tell you how many clients will say never again will they fly on UA) or their ‘travel partners’ who they seem oblivious to damaging their relationship with in every way imaginable.”

• Has United lost their minds??? We are free employees, selling United’s tickets for nothing and hoping maybe we can receive a service fee. The people at United hate the airline and Glen Tilton because they are Harvard MBAs who are in it for themselves and no one else … It’s just a method to drive down labor costs. Sorry, you airline MBAs, it is not going to work for you. You will see!!!”

• “It sounds more like they are having cash flow problems and want to pass the buck. We already push more and more people onto the discount airlines. and if this follow through the gds’s will have a problem and the discount carriers will benefit.”

Except at United Airlines

The ironic twist, of course, is that United isn’t the first to suggest credit card fees are a problem — Continental’s CFO mentioned in January 2007 that it was looking at ways to get around credit cards, including direct bank transfers. British Airways spent three years earlier this decade locked in a legal battle trying to shift American Express merchant fees from its corporate business. It finally pitched its tent and went home in 2005.

But talking and doing are different things, so it’s UA that the American Society of Travel Agents’ legal team now says it intends to take up with the U.S. Justice Department. According to Paul Ruden, the senior vice president of legal and industry affairs at ASTA, this could mean carriers are relaying their intentions without words to get around the antitrust law. He has some damning facts on his side.

As a travel agent and a business journalist, I’m torn between the two sides. Obviously, cost-cutting is a key ingredient in business survival, and I do it myself. Business is not for the faint of heart: it’s a rough and tumble game.

The problems stem when you play out the consequences. Agencies, as many experts point out, will have to charge more service fees beyond the current $10 mark-up at online databases to cover their costs. Meanwhile, consumers are becoming restless and feisty about fees instead of numb and accepting. When airlines unbundled services and began charging $15 here, $25 there, the result was mass irritation. Tacking on another $10 for using an credit card falls in that same category. Not to mention many Americans are beginning to see holes in their income stream and simply can’t afford to pay another sawbuck.

So, naturally, they’ll trot to the airlines’ URL sites directly to book without fees — bad for travel agents, but remember: This is business. Put on your big girl panties or don’t play. However, this also means the passenger load is now the airlines’ full responsibility — their employees are on the hot seat to handle processing changes, cancellations/credits and notifying folks of new itineraries.

It doesn’t take any in-depth musing to determine labor costs could outstrip the estimated $171 million United now pays in credit card fees. From that standpoint alone, it would be nice to save United Airlines from itself.

Which lends some weight to Ruden’s theory that the real end game is to save GDS fees. “Maybe this is partly or all about getting out from under their full-content agreements,” he told ATW. And there are some rules to this game that shouldn’t be broken — like honoring your contracts.

Photography: cliff1066, szlea