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FEE Fi Fo

Written by: Gary Silverman

Article Overview: If you have flown recently you have been bombarded with the airline’s new pricing strategy, a mutating “ala carte” menu of unbundled services in an age of bundling. I prefer to call it “un-bungling”. The published fares on the web seem reasonable and enticing but that’s where the fun begins and ends. Once you click to buy, enter the “Fee Demons”. The official names are the Federal Segment Tax, Airport Facilities Charge, and September 11 Security Fee. Obviously this is a form of government taxation that if included in the fare would make it less attractive to the potential flyer. Your airline ticket now resembles your phone bill with it’s array of “after the facts tax”.

FEE Fi Fo

My $59 flight quickly jumped by 50% and that was just the appetizer portion of my bill. Next came the pre-assigned seat fee and luggage fee which when selected effectively doubled my fare. I fight the last choices by letting the airline assign what always seems to be a center seat surrounded by people trying out for “The Biggest Loser”. My bag, which was once relegated to ride in the belly of the plane with it’s peers, is now literally wedged directly above my head in the overhead compartment. For a few more dollars I could have bought it the seat next to me, or actually not, because the airline would have assigned it a center seat. The upside is that I have finally learned how to pack judiciously, bringing only black clothing so even though I wear the same clothes every day it isn’t that apparent.

Where am I going with all of this? It may be time to analyze the pricing and “fee” structure of your business. Are there fees that you can be charging that could recapture some of your overhead expenses? There are fees that your customers never notice or expect such as the recent “fuel surcharge”. As a society we have become immune to these add-ons. If you lie awake most nights like I do, you most likely see Billy Mays with or without beard pushing some miraculous product that when doubled or super-sized asks you to pay a separate processing and handling fee. What is your competition doing? They may be setting the stage for your fee structure. Do you have different pricing for quantity breaks? If you ship, mail, or physically deliver your products are you adequately covering the costs? Why not make a few extra bucks for the service you provide? Do your long term loyal customers pay the same for your products as a new customer? Should there be a reward system for veteran customers versus rookies? Is your delivery fee based on the value of the order or the distance? If you deliver a $5.00 item 10 miles the delivery fee may exceed the cost of the item, and rightfully so.

An unfortunate aspect about the way we prepare our financial statements is that the revenue lines are disassociated from the expense entries. You need to track and analyze the specific expenses created from the revenue generated to determine if you are maintaining the desired margins. Don’t fool yourself. Don’t be like the guy selling $1.00 watermelons for $.75 who believes he will erase his loss by increasing his volume. How do you account for the personnel expenses directly associated with each transaction? You may not have handed out raises over the past years but your contributions to employee benefits and government payroll taxes are always on the rise. Get the microscope out for this exercise.

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Article Tags: airline, appetizer, beard, biggest loser, billy mays, center seat, choices, clothes, delivery fee, fee structure, fuel surcharge, loyal customers, luggage, overhead compartment, overhead expenses, peers, reward system, rookies, ship mail



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