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Roadlife: Airline bag fees are too good a revenue source to give up

American Airlines passengers converge on the baggage claim area at LaGuardia Airport in New York. Paying extra fees to check luggage has just become a fact of life for travelers, with Southwest the only airline that lets fliers check two for free.

Associated Press (2007)

American Airlines passengers converge on the baggage claim area at LaGuardia Airport in New York. Paying extra fees to check luggage has just become a fact of life for travelers, with Southwest the only airline that lets fliers check two for free.

A year has gone by since major airlines started making travelers pay to check a bag.

Airline executives still debate whether charging the fee is good for business. But one point is beyond dispute: Bag fees and other add-on charges aren't going away.

Bag fees quickly grew into a big chunk of money for carriers. US Airways figures that passenger revenue from sales other than tickets will total from $400 million to $500 million this year, much of that from bag fees.

AirTran Airways reported "other" operating revenue of $56 million in this year's first quarter. The $26 million increase from a year earlier made up a huge part of the airline's $29 million quarterly profit. Besides bag fees, AirTran benefited from sales of business-class upgrades and assigned seats.

Eight of the top 10 U.S. carriers now charge for checking any regular-sized piece of luggage, typically $15 each way for one bag and $25 more for a second. The trend is picking up steam.

US Airways added a $5-per-bag fee for paying at the airport, rather than online. Delta Air Lines imposed the first bag fee among U.S. carriers for international flights — $50 each way for a second piece of luggage — starting July 1.

Charging for services that used to be free, called a la carte pricing or "unbundling," was pioneered by deep-discount carriers Spirit and Allegiant Airlines. In February 2008, United introduced a charger for a second checked bag. American launched a first-bag fee three months later, setting loose a fee frenzy.

Skyrocketing jet fuel prices drove the stampede. Now, airlines are struggling with weak ticket sales, especially on international routes once teeming with high-paying business travelers.

The industry lurches from crisis to crisis. With so many money-losing years, traditional carriers have shown they need fees to compete with low-fare rivals like Southwest, said William Swelbar, an airline researcher at the Massachusetts Institute of Technology.

"This new revenue source is absolutely critical," he says. "It's clear the base fares cannot (cover costs) for carrying passengers from Point A to Point B."

And what about Southwest? The only major airline to let travelers check two bags for free on April 16 reported losing $91 million for the first quarter, due largely to declining traffic. It was Southwest's third consecutive quarterly loss.

But chief executive Gary Kelly insisted the bag fees competitors charge bring business to Southwest. The revenue from losing one customer, he said, amounts to 10 or more baggage fees.

"We are virtually alone in not charging people bag fees," he told airline analysts. "And that translates to higher demand for Southwest Airlines."

Steve Huettel can be reached at huettel@sptimes.com or (813) 226-3384.

Roadlife: Airline bag fees are too good a revenue source to give up 04/28/09 [Last modified: Tuesday, April 28, 2009 8:08pm]
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