Talk about found money: Airlines' baggage revenue surges

[N826AW]

http://www.azcentral.com/business/articles/2009/06/17/20090617biz-baggagefees0617.html

Airlines' baggage revenue surges in 1st quarter
by Dawn Gilbertson - Jun. 17, 2009 12:00 AM
The Arizona Republic

A year ago this week, American and United airlines began the previously unthinkable practice of charging passengers to check a single bag.

The $15 fee, since matched by Tempe-based US Airways and most other carriers, came just a month after airlines started charging a $25 fee for the second checked bag and triggered passenger grumbling from coast to coast.

The $80 round-trip fee to check two bags is equal to a cheap ticket to Las Vegas.

Travelers call it nickel-and-diming, but airlines see only dollar signs - lots of them. Baggage fees have turned into a major moneymaker for the industry and an important cushion in a recession that has zapped travel more than the Sept. 11 terrorist attacks.

U.S. carriers collected $566.3 million in baggage fees in the first three months of this year alone, according to statistics released this week by the federal Bureau of Transportation Statistics. That's about equivalent to how much a smaller carrier like AirTran Airways takes in total in a quarter.

The baggage fees increased more than four times the $122.6 million total from the first quarter of 2008, when airlines only charged for the third checked bag and overweight or oversized bags.

American and Delta each collected slightly more than $100 million from the fees in the quarter and US Airways was close behind at $94.2 million.

"They've turned out to be very lucrative," said Betsy Snyder, airline credit analyst for Standard & Poor's.

She recalled the skepticism a year ago about whether the baggage fees, put in place as fuel prices were skyrocketing, would stick.

Other fees introduced about the same time, such as US Airways' charge for soft drinks and water, have been withdrawn but the baggage fees appear to be here to stay.

US Airways President Scott Kirby, an unabashed champion of so-called a la carte revenue, said at an industry conference in New York last week that it is hard to overstate the value of such fees and said there is no turning back.

"This will be here a decade from now and really is a fundamental change to the (airline) pricing structure," he said.

US Airways, in fact, is raising its baggage fees for some passengers beginning July 9. Passengers at the airport will pay $20 for the first bag and $30 for the second. The airline says it wants to encourage people to use its new option to prepay the fees when they check in online, where they will remain at the original prices of $15 and $25, respectively.

Mike Phelps, a defense systems analyst from Goodyear, understands airlines are in trouble and need to cover their costs. He didn't gripe about the $30 round-trip fee for his recent trip to Philadelphia on US Airways.

He takes issue, however, with the airline's latest move to charge higher baggage at the airport. He doesn't take his laptop on most trips and isn't comfortable swiping his credit card on a hotel computer when he checks in online.

"It's when they tweak it like this that gets my dander up," he said. "They're just picking our pockets."

The timing of the baggage fees and other charges could not have been better for airlines. The oil crisis faded but was quickly replaced by the recession.

Airline ticket revenue has plunged as big-ticket business travel has dried up, and the extra revenue from baggage and other fees, including charging for "choice" seats, has plugged some of the hole. US Airways' first-quarter ticket revenue was down about 17 percent, but overall revenue was off 13 percent thanks to a sharp increase in fee income. "They've been a savior," Snyder said.

So much so that Southwest Airlines CEO Gary Kelly has come under pressure from Wall Street to join the fee parade.

The argument: the nation's largest airline by passengers is leaving a lot of money on the table and hasn't seen a noticeable increase in business because of its highly publicized no-baggage fees policy.

The airline, which has more than 180 daily flights from Phoenix, has resisted charging for the first and second checked bags.

But it is hunting for other sources of revenue and today will double its charge for a third checked bag (from $25 to $50 each way, still less than most competitors) and start charging a fee to carry unaccompanied minors.

Scottsdale retiree Flo Moskat, who has an upcoming trip to Seattle on US Airways, said the $30 round-trip baggage fee she'll pay for one bag is not insignificant on top of the ticket price.

"It just seems like added gravy," she said. "I realize they're in trouble - everyone in business is in trouble. Nevertheless, how come Southwest is still managing to pull through without doing that?"

 

[Tram]

Well you can't make people pay what the ticket is actually "worth" so you might as well slide the cost in there somewhere...

 

[thepedroid]

I'm glad the airlines are turning a profit from the charges. At UPS, I had a guy drop off a 40 lb suitcase to ship to Denver from Phoenix. It cost him $30 and was going to arrive 3 days later via truck. Why should passengers get their luggage shipped for free when the fare they paid for themselves barely covers their own shipping costs?

 

[Minuteman]

My prediction: This practice will come to an end when someone figures out how to file a class action suit that will cost an airline an ungodly amount of money.

I'm not saying anything about right or wrong, just where I think it will end up.

The case could be presented as something similar to signing the papers to buy a new car and then being slapped with a destination charge when you go to pick it up. It's not like you can walk away for free from the deal at that point when additional expenses that are integral to the transaction arise.

 

[N826AW]

My prediction: This practice will come to an end when someone figures out how to file a class action suit that will cost an airline an ungodly amount of money.

I'm not saying anything about right or wrong, just where I think it will end up.

The case could be presented as something similar to signing the papers to buy a new car and then being slapped with a destination charge when you go to pick it up. It's not like you can walk away for free from the deal at that point when additional expenses that are integral to the transaction arise.

But the airline discloses the fees before you buy the ticket. So how is it a surprise if you get hit with a $15 charge when you check-in?

 

[Patrick]

I'm glad the airlines are turning a profit from the charges. At UPS, I had a guy drop off a 40 lb suitcase to ship to Denver from Phoenix. It cost him $30 and was going to arrive 3 days later via truck. Why should passengers get their luggage shipped for free when the fare they paid for themselves barely covers their own shipping costs?

Excellent point. Why is it, that it's generally the same price, give or take 15% to fly versus take the train or bus (and heck, it's often CHEAPER to fly)? The value from flying is in the time saved. So why is it that this value isn't factored into the pricing structure of the product?

 

[Minuteman]

But the airline discloses the fees before you buy the ticket. So how is it a surprise if you get hit with a $15 charge when you check-in?

Well ... that's why I tried to emphasize I was not claiming right or wrong. For a lawsuit like this you need a whole gaggle of people willing to pose as morons for profit.

There is already the (FTC-backed?) precedent of advertising fares with taxes and fees included, so people are used to seeing the a price and assuming that's the full cost of transporting them and their personal items from A to B. If you add-on a variable/optional cost for something that is normally included -- especially something that's assessed at check-in and not at the time of the original purchase -- that could be portrayed as deceptive.

It seems like there it a simple way to address that, though. At the time of the ticket purchase, ask the traveler how many baggage chits they would like to buy.

 

[jima7011]

In the unregulated market, airlines are neophyte--it's only been 30 years since they have had to compete so they are still trying to figure it out. Lately things are starting to look like the bottom is being reached. Customer service has a price and is a revenue generator.

First comes deflation--

Companies lower prices of their product to encourage consumers to buy their product-to accomplish that they outsource work, reduce service expectation (drinks, nuts, baggage, etc) and flood the market with "seats"-when that doesn't work....

Then comes consolidation--smaller weaker companies fail because they can't compete any longer under price pressure and larger companies absorb the smaller companies to increase market share--all are still losing money so those stronger are defined by COH (cash on hand) to weather the storm.

Then comes inflation--the weak are dead or dying and the relatively stronger companies increase prices to recover costs--their market share is greater through aquisition but their market penetration is still low--they adopt the philosophy that even though they are getting fewer buyers, they are making more per customer so they will begin to form their business model to adapt to the new environment-in the airlines this means capacity cuts, outsourcing, labor cuts, etc.

Once they are again profitable, they will begin to seek out new markets and ways to increase their market share.

We already see this happening across the board. Added "fees" are just the beginning phases of the inflation phase. Generally people will not stop flying. They may avoid it, but the fact is that we are too mobile a society and frankly going by train or driving across country is a hassle and expensive. Airlines have been their own worst enemy by driving prices down in an attempt to kill the "weaker" guy but that is coming to an end. Their is a limit to how low they can go.

In my opinion, 20 years from now--"mainline legacies" will be profitable but only do their own flying on overseas international flights where people are willing and able to afford higher ticket prices, fees for luggage, etc AND the airline can afford to provide better service. All domestic flying will be outsourced to stronger regional affiliates who can do it cheaper (reduced labor costs, newer airplanes..smaller footprint) charging for a la carte services.

While most will think it's good for them that eventually prices will go up so they can pay pilots more...the fact is the labor shift is from mainline pilots to "cheaper" regional flying. Barring some change in the law (maybe Colgan 3409 which I doubt anything permanant happening there) or some sudden found "guts" by the pilot unions/elimination of the "pull up the ladder behind you crowd"/sudden coordination of the fractured and discombobulated Pilot unions, you will see regional flying become the "new" mainline.

You can wish for a rosier future but I think it's clear that the latest "downturn" is not a down turn but in fact a fundamental change in the airline biz--all expedited by a poor economy, high fuel cost, reduced demand and a pilot group/unions with nothing better to do than squabble amongst themselves.

 

[upup89]

I really think a baggage fee is a good idea. You see those people that have 3 pieces of luggage just for themselves. You can't expect a 50 dollar ticket each leg and free shipment of your belongings.

 

[tonyw]

I've got a solution to the "problem" of baggage fees.

Pack lighter.

Guess what? You are not going to need the kitchen sink when you travel to Aunt Bessie's for two days.

People are maroons!

 

[ozone]

People are maroons!

The tasty cookie or the color? I am confused.

 

[CaptBill]

How about not charging for the first two checked bags and charging for the privilege of carrying on a bag? Allow one very small personal bag (diaper bag, hand bag, computer or purse size) and charge for all those gigantic bags that delay boarding and damage airplanes as passengers try to cram and jam a 50 pound oversize bag into the overhead thereby saving the checked bag fees. Encourage people to check bags and discourage them from dragging all their belongings into the cabin. That makes a lot more sense to me.

 

[Kestrel452]

What is so wrong about charging money for a checked bag? Bags add weight, and more weight means more fuel being used to get the craft moving. If bag charges are what keep ticket prices down so the fellow who can pack all he needs into a small carry on suitcase doesn't have to pay for the ones who can't, then it is more fair for everyone.

What people AND airlines don't realize is that flying shouldn't be a cheap way to travel. If people would rather spend less and go 60mph down a highway rather than spend the extra dollars to go over 500mph in the sky then that is their issue.

What people also dont get (and airlines were late in figuring this out too) is that customer service costs. Why aren't in flight services like food or drinks given out like candy anymore? Because regulation era costs are GONE. Why do people expect to get free meals and drinks for a $70 ticket ? Not to mention free travel for their 50+ pound suitcases.... If you want those goodies, buy a first class ticket! You don't get these amenities for free on a train, so why should they be free on a plane? The point of flying in a plane is to get from point A to point B in a fraction of the time it would take by train or automobile. This, gentlemen, is the key to getting the airlines back into shape. People have too much of an entitlement attitude when it comes to flying with the airlines. The airlines are here to transport you, not ship your goods or give you lunch. If you want that, pay for it yourself.


The airlines are starting to figure this out, so in my mind they should be much better off after this recession. It may take awhile before they really take off financially, but nevertheless they are already cutting needless costs that killed them in the first place. Anyone agree with me on this?

 

[n6149s]

I would say that people should pay more to fly. You are getting there in a fraction of the time (assuming that you arent leaving a NY area airport and you are driving more than 300 or 400 more miles). The public doesnt realize that they dont even pay for their fair share of fuel in their ticket price. Id say that the extra $ coming in from baggage fees will go to CEO's and admin, not the flight crew.

 

[CaptBill]

What is so wrong about charging money for a checked bag? Bags add weight, and more weight means more fuel being used to get the craft moving. If bag charges are what keep ticket prices down so the fellow who can pack all he needs into a small carry on suitcase doesn't have to pay for the ones who can't, then it is more fair for everyone.

What people AND airlines don't realize is that flying shouldn't be a cheap way to travel. If people would rather spend less and go 60mph down a highway rather than spend the extra dollars to go over 500mph in the sky then that is their issue.

What people also dont get (and airlines were late in figuring this out too) is that customer service costs. Why aren't in flight services like food or drinks given out like candy anymore? Because regulation era costs are GONE. Why do people expect to get free meals and drinks for a $70 ticket ? Not to mention free travel for their 50+ pound suitcases.... If you want those goodies, buy a first class ticket! You don't get these amenities for free on a train, so why should they be free on a plane? The point of flying in a plane is to get from point A to point B in a fraction of the time it would take by train or automobile. This, gentlemen, is the key to getting the airlines back into shape. People have too much of an entitlement attitude when it comes to flying with the airlines. The airlines are here to transport you, not ship your goods or give you lunch. If you want that, pay for it yourself.


The airlines are starting to figure this out, so in my mind they should be much better off after this recession. It may take awhile before they really take off financially, but nevertheless they are already cutting needless costs that killed them in the first place. Anyone agree with me on this?

I largely agree with you. The problem with most airlines though is that they are always competing for the same customer with other airlines. If airline A does not charge for something, airline B is reluctant to charge as well. It's the competition factor that gets in the way of charging legitimate fares that actually reflect the cost of doing business.

 

[Kestrel452]

I largely agree with you. The problem with most airlines though is that they are always competing for the same customer with other airlines. If airline A does not charge for something, airline B is reluctant to charge as well. It's the competition factor that gets in the way of charging legitimate fares that actually reflect the cost of doing business.

That is 90% of the reason why these new changes are taking so long to be implemented. No one wants to be the first one that does it, yet no one wants to be the last. In spite of our current situation, I think we are headed into a trend for the better.

 

[BCTAv8r]

I'm glad. Everytime I travel my family takes WAY too much stuff with them (which I end up having to carry) and now that we are traveling on Delta, it's not gonna happen.

Keeps the airline and me happy.:clap:

 

[OldTownPilot]

Drives me nuts (as someone that has never checked bags) as the storage inside the airplane was designed around small bags with free checked luggage in the hold. Now its impossible to find room in an overhead of you are amongst the last 25% of the people to board the airplane (which most of the time nonrevs are) plus I hate sitting in the airplane waiting to go. I'd much rather wait in the terminal and be amongst the last to board.