09 September 2008

Continental Adds the First Bag Fee; Is Delta Next?

Looks like Continental has decided to start charging $15 for the first checked bag at the same time they work on devaluing their frequent flier program. Yep, they’ve got some bad news for everyone in this round of changes. The tersely worded statement released by the airline was released on Friday morning, and it leaves a lot to be desired. For an airline that has been gaining an increasing reputation for a premium product, this seems to fly in the face of what they’re trying to do.The statement itself was odd in that it had no quotes from senior management and made no effort to try and offer a rationale. I suppose this isn’t surprising because it’s harder to explain in the face of declining oil prices (down below $108 last I checked). So why would they do this now?
Maybe those fall revenue forecasts are coming in lighter than they thought, so they’re trying to boost them up quickly. Then again, there are so many holes, it’s not going to have as great an impact as they might want. Full fare coach, military, and elite members don’t have to pay. But don’t worry, those elite members have far more to be angry about.Continental is eliminating its 500 mile minimum accrual per flight. You’ll now get actual miles flown. But even more likely to bother the best customers than that is the reduction in bonus miles earned. Silver elites will now get a 25% bonus over actual miles flown instead of a 50% bonus. And Platinum elites will get 100% instead of 25%, matching the Gold elite bonus which remains unchanged. This change makes some sense. The levels were previously aligned with Northwest’s levels, and now these new ones will match United. While both of these make some sense, taking away a perk always angers people, and these are Continental’s best customers.For Continental to do something like this is surprising. It leaves Delta as the lone holdout from the first bag fee among legacy carriers. At NBTA, Delta CEO Richard Anderson made it clear that they thought one free bag was a fair deal and that they were committed to it. True, they charge $50 for the second bag, $25 more than everyone else, but that probably doesn’t make them nearly as much as a first bag fee would.So we now have Northwest and US Airways which have made it clear they want to be at the bottom of the food chain. American and United are sitting in the confused middle, lacking a consistent message. Continental and Delta are at the top, but Continental seems to be making some ill-advised changes that put their strategy in question, to some extent.Will Delta follow? Or will they continue to stand by their promise to offer a premium coach experience? Will Continental continue to devalue its offering?Update 9/8 @ 813a: Apparently, Continental CEO Larry Kellner has given a little bit of the rationale to his troops on why they implemented the bag fee:
As you may have seen, we announced a $15 fee for the first checked bag for certain customers earlier today. While it’s not our preference to do so, given the current environment, we are losing our competitive stance with other carriers. We had hoped that we would see more customers choosing Continental with other airlines charging for the first bag, but we didn’t see that happen, so we think this is the right thing to do for Continental.

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