Monday, April 01, 2013


Airline Pricing or Flat Rates?

Southwest has spoiled me.  I’m so used to just checking a bag and not thinking about it that when I flew USAir last week and saw a “bag fee,” I actually got offended.  What do you mean, “bag fee”?  If I didn’t bring a bag, I’d get flagged by TSA, but you’re charging a bag fee?  How about a seat fee?  Sheesh.

The airlines that charge extra fees do it so they can reap revenue while still appearing cheap on travel websites.  Since people generally shop by fare, isolating fees from fares is a way to game the system and still make money.  People of my generation and older will remember the yellow pages, and the old trick of plumbers naming themselves A. Aaron and Sons to get the first alphabetical listing.  It’s the same idea, only less honest.

So I had to smile when I read about colleges doing basically the same thing.  In order to appear cheap on comparison charts and in headlines, they’re holding “tuition” down by shifting revenues to “fees.”  Worcester State, in my own state of Massachusetts, drew headlines a little while back by charging a pedestrian access fee to pay for sidewalks.  Other colleges have charged “quality” fees, or “global” fees, or, in the case of Oklahoma State, a “life safety and security” fee.  I have no idea what a “life safety” fee covers, or, more menacingly, what happens if you don’t pay it.  (“We’ll show you the real meaning of “Sooner..”)  

The issue with fees isn’t so much their existence as their extent.  “Lab fees” are fairly standard across higher ed; they cover consumables that students use in lab sciences and/or studio art classes.  Most people accept those as straightforward, since their utility is clear.  “Student activities” fees are also pretty standard.  “Technology” fees sound general, but given student expectations about on-campus tech, they’re pretty easy to defend.

But fees are multiplying well beyond their original intent.

(A quick word about my own state of Massachusetts.  Here, the legislature sets the tuition, and for courses taught by full-time faculty, the tuition reverts to the state.  But colleges set their own fees and keep the revenue.  The legislature hasn’t raised “tuition” since heaven knows when, so at this point, fees are several multiples of tuition.  If it were up to me, we’d just reverse the names and be done with it.  The issue arises with “free tuition” scholarships or benefits.  Since tuition is a relatively small, and declining, percentage of cost, those benefits mean less than a reasonable person would expect at first blush.)

The problem with airline pricing, as anyone who follows the airlines knows, is that it’s unsustainable.  The commercial air industry is remarkably volatile, and customer satisfaction with its more absurd pricing practices is legendarily low.  But at a basic level, I get it.  Flights cost.  If your competitor hides the cost and you don’t, you lose.  You need revenue to operate.  So you do what you have to do.  (Southwest’s model suggests that the “you lose” scenario isn’t necessarily true, but I don’t pretend to understand all the variables.)  

I’ve been listening to last week’s episode of This American Life, about the Disability program run through Social Security.  The argument of that episode parallels the arguments around fees.  Basically, when we ended “welfare as we knew it,” we didn’t end the need for welfare.  So disability has become a de facto welfare system in many areas.  We can rail against “welfare” all we want; at the end of the day, a modern economy has costs, and we have to pay them one way or another.  We can call it welfare, we can call it disability, or we can call it incarceration, but one way or another, we’ll pay it.  We can’t not.  In fact, by hiding the real cost and getting cute about it, we wind up paying more.  The program mentioned a private company that has contracts with 17 states to comb through the welfare rolls to find people to shift to the disability program; since welfare is paid by states but disability is paid by the feds, the states have an incentive to cost-shift.  And the company with those contracts is, in the scheme of things, a deadweight cost that serves only to hide the truth.

In my perfect world, I’d rather see public colleges have reliable and substantial operating funding, and the freedom to experiment with competency-based credentialing, than try to keep the old system alive through a shell game of find-the-fee.  But I get it.  Education costs.  We can pay that honestly -- and therefore cheaply -- or we can play games.  I’d rather we paid it honestly, but if we only pay attention to headline numbers...

"Sooner" is a University of Oklahoma student, employee, or fan.

The Oklahoma State University students, employees, or fans are "Cowboys"
To be fair, the bag fee is also about encouraging me to travel lighter so as to save on fuel. As someone who always travels light, this is good for me. I just wish they'd let me bring more liquids.
The problem with baggage fees is that everyone tries to put everything into an overstuffed carry on, and the bins are not big enough to let everyone do that, so flying with baggage fees is a double misery if you are one of the few who usually check a bag, as I do.

The Southwest insight is that, by encouraging flyers to check a bag by making it free, the boarding/unboarding process is much more pleasant for everyone. Plus, they have low fares anyway, and free bags reinforces that reputation.

On the other hand, for the industry as a whole, I believe they make more money on baggage fees than they do profits on the seats.

As to your observations on tuitions v. fees, I agree wholeheartedly.
Life Safety and Security is a fund that pays to bring educational buildings up to new code as per decennial (usually) inspections by the state. Presumably the fee makes up for inadequate funding.
When I was in grad school, a friend and I discussed the administration office at our school. He claimed that if a university could offer better administrative services (shorter lines, less confusing processes, fewer fees) then that university would have a competitive advantage for attracting and keeping students.

This post makes me think about that point. I think up until recently, students just sort of put up with whatever fees and administrative hassles came with going to higher ed, particularly if people went to their "dream" school. Now, as costs rise and the value of degrees and diplomas become a bit more suspect, students are paying attention. I'm not sure if the airline pricing model is effective in the long run, but it's definitely one way schools are thinking about this issue.
There are more problems with shifting people from welfare to disability payments. People get labeled if they are on disability for psychiatric or learning problems; they (and we) think of welfare as temporary and disability as permanent; and we think of welfare in terms of what it replaces (employment income) while we think of disability in terms of what it "makes up" for -- a deficit in the person receiving it. All in all a bad trend.
It's especially frustrating for graduate students like me, who are technically funded, not eligible for anything but loans, not supposed to work outside the program, but have to pay 3000/year in fees (because the tuition is waived, but NOT the fees) out of our after-tax stipend. Cutting that off the top would put us easily eligible for food stamps, but they'd rather give us a stipend that's $50 over the poverty level and then charge the fees.
The TAL episode was misleading and a bit unsettling (but not for the reasons the show wanted us to be unsettled).
Re: Southwest

DD, Southwest gets away with their model because they don't distribute their fares in the mass-market systems that the other carriers do.

E.g., go to Kayak and search MDW-BWI. You won't see a Southwest fare.

Southwest doesn't want you to see their fares stacked up against the competition, so they make you go their website.
Up here, tuition is tax-deductible. Fees aren't.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?