U.S. airlines charged $1.5 billion in checked
baggage fees during the second quarter of 2019, according to new data
released this week by the Department of Transportation.
During the first six months of 2019 checked
bag fees totaled $2.8 billion, putting airlines on pace to beat last year's
record $4.9 billion haul from bag fees.
Airlines aren't actually making nearly $5
billion on these fees that consumers love to hate.
·
Passengers don't
simply pay more for travel because airlines raise prices. Ticket prices have
been falling while checked bag fees rise.
·
Checked bag fees have
pushed passengers to carry more bags on board, slowing down the boarding
process, and that means higher costs for airlines.
Instead a good portion of the benefit to
airlines from checked baggage fees comes from the tax code. If you don't like
checked bag fees, blame tax law - and the people who write it.
Tickets used to come with checked bags. Now
most domestic tickets include transportation with checked bags sold separately.
Passengers checking bags aren’t suddenly willing to spend more for air travel
than they were before.
While some passengers - usually business
travelers - are price insensitive, checked bag fees disproportionately fall on
more price sensitive leisure travelers who take longer trips, check more bags,
and are less likely to be exempt from the charges due to frequent flyer elite
status.
On average the total cost of a trip, airfare
plus fees, is no higher today than when a fee for each passenger's first
checked bag fees was introduced by American Airlines in May 2008.
Clearly some of the checked bag fees represent money that would likely have
been part of the fare before.
Southwest Airlines, which doesn't charge fees
for each passenger to check up to two bags, even thinks they make more money
not charging checked baggage fees.
Checked Bag Fees Come At a Big Cost to the
Airlines
Passengers carry on more bags because they'd
have to pay to check them. That slows down the boarding process. Slower
boarding means less efficient use of aircraft and more delays, which can cost airlines nearly as much as
they’re taking in in bag fees.
Gate checked bags add a few minutes to the
boarding process. Passengers spend time trying to find overhead space, and when
bins are full return to the front of the plane to have their bags tagged and
taken. Then airline staff have to spend a couple of minutes moving gate-checked
bags to the belly of the plane. A minute or two gets added on to deplaning an
aircraft, too.
Just a few minutes added onto each flight
generates huge costs. Southwest’s CEO claimed “It would cost us approximately 8
to 10 airplanes of flying per day if we were to add just a couple of minutes of
block time to each flight in our schedule.”
That’s because an airline can't simply push
their schedule later into the night. They have to schedule flights when
passengers want to fly.
Big Profit in Checked Bag Fees Comes From Tax
Arbitrage
There’s an excise tax of 7.5% on domestic
airline tickets. However the excise tax doesn’t apply to fees. By moving bag
fees out of the price of a ticket airlines are able pocket a huge tax savings.
At $5 billion a year in checked bag fees U.S. airlines are saving $375 million
in taxes.
Ultimately checked bag fees themselves aren’t
the big business that simply summing up the charges from an accounting
standpoint would have you believe. Checked bag fees don't represent a pure
increase in revenue and they come at a cost in boarding efficiency. A secret -
and huge - benefit to the airlines from checked baggage fees is saving hundreds
of millions of dollars in taxes.
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