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Continental-United deal could mean new fees

A merger could increase the number and cost of travel fees.

By Karen Datko May 3, 2010 9:58AM

This Deal of the Day comes from Kelli B. Grant at partner site SmartMoney.

 

Investors have already digested many of the implications of a merger between Continental Airlines and United Airlines. Now, consumers should brace themselves for one in particular: new fees.

 

After years of sputtering merger talks, the two carriers announced a deal to combine operations this morning. The new airline would be the world’s largest, in terms of the number of passengers carried. During 2009, Continental and United carried more than 77.4 million passengers on domestic flights alone, according to the Bureau of Transportation Statistics. Delta, the current record-holder, carried 55.6 million domestic passengers over the same period.

 

Fusing Continental and United may affect a variety of customer services, including fare sale policies and frequent-flier miles. But the carriers’ differing approaches to fees could also mean added costs for many fliers -- particularly Continental fans. (Neither United nor Continental returned calls for comment.)

 

“Continental has resisted fees as much as it could,” says Rick Seaney, the founder of FareCompare.com, a fare tracking site. Among the major carriers, it was the last to charge for a first checked bag in 2008, and, until March, the last holdout on free in-flight meals.

 

Meanwhile, United has been quick to match other airlines’ new fees and fee increases. Some of its fees are significantly higher than Continental’s -- $125 versus $50 for an overweight bag, for example, and a reward ticket cancelation fee of $150 instead of $75.

 

With rising oil prices and fewer travelers, higher fees are likely to persist, says Basili Alukos, an analyst who covers the industry for Morningstar. “Fees add a little less variability,” he says. “They know they’ll at least get this much per passenger.” The industry collected $2 billion in checked-bag fees alone during the first nine months of 2009, according to the Department of Transportation. Fees also help airlines reduce their operating expenses by allowing them to buy less food for flights and hiring fewer baggage handlers, he says.

Airline mergers tend to move slowly, and a deal between Continental and United is unlikely to be an exception. Travelers may not see any changes to fees until 2011, says Anne Banas, executive editor for SmarterTravel.com, a travel advice site that tracks fees.

 

Here are six fee trends to watch as the merger takes shape:

 

Continental passengers may pay more. United will be the surviving brand, and analysts say its policies and fees are likely to take precedence. Right now, Continental and United passengers pay the same fees for first and second checked bags ($25 and $35 at the airport) and changing a ticket ($150 domestic, $150 to $250 international). But Continental customers pay less to bring additional, overweight and oversized bags; to book tickets over the phone and in-person; and to book an unaccompanied minor on a nonstop flight.

 

Some charges could be reduced. United passengers could benefit from some lower fees if the two carriers decide to meet in the middle. There is a historical precedent here. At the time of the Delta-Northwest merger, Delta took on Northwest’s lower booking fees and didn’t pick up its charge for a first checked bag, Banas says.

 

Other airlines will keep fees in line. Although overlapping Continental and United routes will mean less competition in some markets, fees tend to be fairly consistent across the industry, says Dean Headley, an associate professor of marketing at Wichita State University. Whatever the new airline charges for checked bags, phone booking or ticket changes, it’s not likely to be much more or less expensive than other carriers.

 

Tarmac rule offers some protection. Travelers who book their trips before the changes take place don’t need to worry about paying higher-than-anticipated fees. The Department of Transportation’s new passenger protections prohibit airlines from retroactively changing the contract of carriage, which includes grandfathering in new or higher fees, Banas says. (If fees were to drop, the new, lower charges would apply.)

 

Expect to pay for priority. Fliers may have more opportunities to buy their way into individual perks. “United caters to more premium passengers, so they are always trying to upsell,” Alukos says. Nearly a third of each cabin is devoted to premium seating. Continental passengers may find some of the upgrades enticing, he says. One-time Economy Plus trade-ups, which offer up to 5 inches of additional legroom, start at $9. Passengers at select airports can pay $19 and up for Premier Line, which gives them access to separate check-in, security and boarding lines.

Annual fees may be worth a look. Some new fee options could end up saving certain customers money. Premier Baggage ($249 a year) lets a passenger and up to eight companions each check up to two bags free per flight. Regularly, it’s $23 to $25 for a first checked bag, and $32 to $35 for a second on domestic flights. A family of four each checking a bag could break even on their third one-way flight. But elite frequent fliers get free bag perks, so the annual pass offers less value for individual travelers who would need to take more flights for the upfront fee to pay off. United also offers a $425 annual rate on its Economy Plus seating for the purchaser and a companion. Travelers should do the math on their own routes to see if the deal is worthwhile.

 

Related reading at SmartMoney:

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