April 17, 2024

Dynamic Pricing Is Coming for Everything in Travel

JetBlue added peak pricing to checked luggage, so comparing flight prices with fees just got more difficult.

First it was Ubers. Then it was Wendy’s hamburgers (except the fast food chain clarified it was technically dynamic pricing, not surge pricing). But now, the real deal — surge pricing — is targeting your checked bags.

JetBlue quietly (sneakily?) introduced “peak” and “off-peak” pricing to its checked bag fees on March 22, a fact the world was alerted to because my editor happened to check the JetBlue website. That means you have to pay $5 to $10 more each way for checked bags on JetBlue when flying during busy travel times, such as the summer, much of the winter and some random weeks in the spring.

It's a classic example of surge pricing — a type of dynamic pricing where companies only increase prices during times of high demand, but don't lower pricing during times of low demand.

Technically, these new dynamic baggage fees won’t affect all customers like the blanket increases some other airlines, such as Alaska and Delta, recently added. Yet they also mean more complication and confusion for customers who are trying to figure out which airline offers the lowest total price for a given route.

Dynamic prices are nothing new in the travel industry. In fact, prices that rise and fall based on the balance of supply and demand are taken for granted in everything from airfare to hotel rooms and rental cars.

What’s new is how these companies are fluctuating the price of the add-on fees many travelers are growing to deplore.

And airlines are increasingly relying on these add-on fees for revenue. In 2023, airlines made a record $117.9 billion worldwide in ancillary fees, according to airline consulting firm IdeaWorksCompany and car rental technology platform CarTrawler. About $33.3 billion of that was baggage fees.

Some industry experts say the move to more fluid fee prices has been a long time coming.

“Airlines have had capabilities for years to price fares based on demand. Why not other fees as well?” says Jay Sorensen, president of IdeaWorksCompany.

Sorenson notes that many airlines have been dynamically adjusting the price of seat assignment fees for years. The cost of choosing a window seat near the front of the plane for a particular flight might cost more in December than in February because of increased demand.

Yet, it seems like airlines have been so preoccupied with whether they can make more money from increasingly complex fee structures that they haven’t stopped to think about whether they should.

What makes a fare fair?

It all comes down to how we think travel companies should price their products. Sorenson thinks we are holding airlines to a standard to which we don’t hold other retailers.

“Shopping for an airline seat is like shopping at a grocery store,” he says. "If the grocery store was required to tell you beforehand how much you were going to spend, it would be ludicrous.”

The base fare is more like the shopping cart into which we toss other add-ons, such as seat assignments, premium seating upgrades and baggage. It’s up to the consumer to compare prices at different airlines, just as it’s on them to compare prices at different grocery stores.

If JetBlue wants to charge more for eggs (baggage) near the holidays, we can decide whether we want to pay the premium or shop with an airline that doesn’t, according to Sorenson.

But I would counter by saying that charging extra for checked baggage on peak dates is more akin to charging extra for the carton that carries your eggs. It feels like a tacked-on “gotcha” fee meant to sneak under most consumers' radar rather than a meaningful price for a meaningful good.

Whatever you think about dynamic travel fees, it’s clear that they’ll become more common than less in the coming years. What can you do?

Tips for navigating dynamic fees

It’s not reasonable to keep track of which travel providers are charging which fees at which times. I can barely do it, and it’s my entire job.

Instead, it’s worth getting a sense of which airlines tend to charge higher fees overall, and, frankly, avoiding those brands if you want any add-ons at all.

For example, Frontier Airlines charges $157 each way in basic add-on fees while Southwest Airlines charges $0, according to the latest NerdWallet analysis.

So the simplest tip is to fly on Southwest Airlines. It doesn't have dynamic prices for fees because it has so few fees, period. Two checked bags per person are free.

If that’s not feasible, you might consider getting a co-branded airline credit card, many of which offer free checked bags. Because baggage fees are becoming increasingly complex, this type of credit card lets you avoid the headache of dealing with them altogether, just as paying for Spotify Premium lets you avoid those terrible ads.

Finally, skip seat selection fees if you possibly can. These fees are sneaky and difficult to compare between airlines, but they’re almost always optional. And, as Sorensen points out, they are essentially charging for something that costs the airlines nothing.

“When something is pure margin, my advice to airlines is ‘don’t be so greedy,’" he says.

How to maximize your rewards

You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2024, including those best for:

  • Flexibility, point transfers and a large bonus: Chase Sapphire Preferred® Card

  • No annual fee: Bank of America® Travel Rewards credit card

  • Flat-rate travel rewards: Capital One Venture Rewards Credit Card

  • Bonus travel rewards and high-end perks: Chase Sapphire Reserve®

  • Luxury perks: The Platinum Card® from American Express

  • Business travelers: Ink Business Preferred® Credit Card

Copyright 2024 NerdWallet, Inc. All rights reserved. From https://www.nerdwallet.com. By Sam Kemmis.

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