The Biz Flog – 'Nickel-and-Dime' Accusation Ignores Rising Cost of Jet Fuel to Airlines

Catchphrases provide little context to media stories. So, when it comes to airlines and the phrase “nickel-and-dime,” reports are just becoming lame.

The Biz Flog, the video blog over at the Business and Media Institute, takes at look at the effect the high cost of oil has had on the airline industry, and the effect that has had on passengers seeing higher ticket prices and fees.

Instead of focusing on and explaining the real causes of higher ticket prices, the media have accused the airline industry of trying to “nickel-and-dime” passengers.

On “MSNBC Live” July 9 host Tamron Hall gave a report on the quality of commercial airline travel, calling price increases “nickel-and-dime fees.”

“Passengers think they’re getting nickel-and-dimed,” host of the Today show, Matt Lauer said July 9 on the morning program. “All the things that were free on planes are now costing us.”

But airlines are companies too and have an obligation to make a profit, and that is even harder with the high cost of oil. And as costs for the oil rise, so do costs to process it into jet fuel, adding insult to injury.

Virgin America CEO David Cush told Bloomberg’s “On the Economy” that “the price of processing fuel from crude oil to jet fuel historically has been in the $8 to $10 a barrel range. That changed a few years ago and now we are paying about $25, earlier we were paying $35. So it’s not just the price of crude, it’s actually the price of processing crude.

And in addition to hiking fees, airlines are taking cost-cutting measures as well, but trying to remove excess weight from flights.

The Associated Press reported July 10 that US Airways (NYSE:LCC) would start removing in-flight movies on domestic flights in November 2008 “to save about $10 million annually in fuel and other costs.” A spokesman for the airline said that the movie systems weigh about 500 pounds each.

 

Just because an airline ticket costs more doesn’t mean the airlines aren’t looking to the future to update from older, less efficient planes like the MD80 and the A320 to more efficient airliners.

Boeing (NYSE:BA) predicted in its 2008 Current Market Outlook that that airlines would begin switching to more fuel-efficient planes. The manufacturer estimated a $3.2 trillion market for new commercial airplanes over the next two decades. The company said replacement airplanes rose from 36 percent of total orders last year to 43 percent this year.