3 Things That Will Happen Now That American Airlines Has Raised Checked Bag Fees

Yesterday Delta raised first and second checked bag fees by $5, following a move made by United and earlier by JetBlue. Delta made the change immediately, but did not tell anyone. They still haven’t sent out a release or news item, and have not e-mailed customers.

American Airlines just announced what should surprise literally no one, that they’re raising first and second checked bag fees by $5 as well, from $25 to $30 and $35 to $40 respectively. When United followed JetBlue, it was clear American would have to — they’re under real pressure from Wall Street over revenues and would have a difficult time explaining why they’d be “leaving money on the table.”

Once Delta made the move, American was never going to stand alone. And besides, Delta did it. Delta is smart, everything they do must be right.

Checked bag fees aren’t a magic pill for ails airline revenue, however. Indeed, the total cost of air travel (inclusive of fees) has fallen since first checked bag fees were first introduced (by American!) a decade ago.

Three things are going to happen to American now that checked bag fees are going up effective tomorrow:

  1. American’s ‘checked bag fee revenue’ will go up
  2. American’s total revenue will not materially change
  3. American’s tax bill will go down

If airlines could make more money by just charging more, they would… just charge more (raise fares). For the most part airline pricing strategies are about getting customers most willing to pay more to spend more.

  • If you care about your seat assignment you’ll pay for a better seat assignment, or sit in back by the lavatory.
  • If you care about making changes you’ll pay change fees or buy refundable tickets.
  • If you’re a business traveler you’ll avoid cheaper basic economy tickets.

Business travelers are less likely to pay checked bag fees than leisure travelers. They may just carry on a bag for a short trip. They may have elite status as frequent flyers, exempt from checked bag fees. That isn’t to say business travelers don’t pay checked bag fees, they do, but as a proportion of customers they pay them less often.

Blog reader ‎Hemal G checked deoderant onto an American Airlines Charlotte – Newark flight because he wanted to use his free checked baggage allowance.

So this is a fee increase on the price sensitive leisure segment, the least likely to pay more. And it comes at a time when online booking tools are helping customers to better understand their total trip costs — which is why American Airlines was forced to roll back the ban on full sized carry on bags for basic economy customers. Delta didn’t have such a rule, so a customer looking to bring a bag on board saw Delta offering a lower fare for what that customer needed.

American had no choice but to raise checked bag fees because they weren’t going to be able to convince Wall Street they’re doing what’s necessary to increase revenue if they didn’t. With greater revenue challenges already they lack the credibility to make the counterintuitive (but true) case.

Sitting in the Back of Coach on American Airlines

When United launched basic economy they reported losing about $100 million, attributing it to American offering a better deal to customers since American Airlines hadn’t yet launched draconian basic economy fares yet. United made clear that offering a better total cost package wins meaningful customers and that the amounts are material.

American isn’t in a position to take this upside. Southwest would be in a much better position to benefit if they would begin to pay for third party distribution of their fares, so customers could compare total trip cost side-by-side — something that has to come eventually once the online booking sites are doing a good enough job making Southwest appear to be the better deal with no change fees or checked baggage fees.

The good news for American of course is that even if this change doesn’t move the needle on revenue, if total trip cost remains the same and fares fall, they’re moving money out of fares and into fees — fees which aren’t subject to the federal 7.5% excise tax on domestic airfare. An airline with $1 billion in ancillary fees unbundled from domestic fares saves $75 million in taxes.

The sad thing of course is that customers get nothing in return for the higher-priced checked bag fees. American announced the change — but what they failed to announce is matching Delta and Alaska with a 20 minute checked baggage delivery guarantee.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. except that DL’s so called guarantee come with these weasel words :

    “The time to baggage claim will be defined as time elapsed between aircraft door open and delivery of the bag to the baggage claim belt”

    so after captain turns off the engine and people start pulling their stuff from the bins, they can actually start unloading the cargo hold bags for a few more mins before they open the door to the jetway, effectively giving themselves some nice buffer room

    and to make matters worse, here’s more weasel legalese :

    “Delta Air Lines reserves the right to suspend this baggage service guarantee at any time and without prior notice in the event of an airport baggage system malfunction, severe weather, or other conditions out of Delta’s control that would prevent timely baggage delivery.”

    if you’re cynical, you can extrapolate that to a scenario where tarmac traffic is held up by a very slow tow-in / push-back of a plane, then they can blame it on “conditions out of Delta’s control”

  2. “American had no choice but to raise checked bag fees because they weren’t going to be able to convince Wall Street they’re doing what’s necessary to increase revenue if they didn’t. With greater revenue challenges already they lack the credibility to make the counterintuitive (but true) case.”

    Sounds nice, but is completely wrong. AA WILL increase revenue by raising the bag fee. It won’t be $5 from every pax who currently checks a bag — as some will now decide they don’t need a checked bag at this higher price point (and a tiny few will defect to WN). I guarantee that if management thought leaving the bag fee at $25 would increase revenue, they would gleefully do that. It wouldn’t, and it would risk a rollback of the bag fee increase from the other carriers that would make the entire bag fee “pie” smaller.. Think of this like when a toll highway raises its toll. Some people decide not to take the highway — especially at first. But overall revenue rises. It always does.

  3. @Hemel G, is that Degree Sport Stick? That happens to be my travel deodorant. I don’t see it often, and have to buy it on Amazon.

  4. Yes I will give American anything they ask me for
    100 dollars for a coach seat assignment
    Baggage fees change fees bre athing fees toilet privileges
    I will bend over each and every time they copy Delta
    There is simply no other consumer choice that might be better or available
    They have the best leg room and the best custormer service with the happiest friendly flight attendants and team members
    All with a passion to serve with leading customer service
    Their prices should be doubled imo
    Why is my nose growing like Pinocchio ???

  5. High time for Washington to close the tax loophole. The American people need the taxes.

    And good point that this makes American families subsidize the business traveler. You simply can’t travel with small kids without checking in bags: not only you don’t have enough hands to schlep everything to the gate, but you usually have creams, medicines, etc. that exceed the limit and therefore you can’t avoid the now $60 per trip fee.

    Kind of unbelievable that families with small kids are paying for rich business travelers.

  6. You forgot a fourth thing: boarding will be even SLOWER and STRESSFUL than ever, as more people will decide to take things on board to avoid the huge fee. You will see more and more that when you arrive at the gate a whopping 40 minutes before departure (for a narrow body), they’ll be already loading group 5 and everyone will be stuck for minutes as they stuff their bags.

    Am not looking forward to that!

  7. I love the way Gary follows the airlines. He observes what the airlines actually say, write, and do, and reports it. In other words, he reports directly from primary sources (like a competent historian). Then he draws a direct conclusion from those primary sources. Easy to understand sourcing and reasoning. One could argue with his conclusions, but it is hard to argue with his facts.

  8. While the Big Three Airlines (AA, UL, DL) are figuring out ways to degrade service, Alaska Air are figuring out way to retain customers.

    Two examples: (1) last month, I was in Oregon checking out the great Oregon Pinot Noirs. All the wineries knew that Alaska Airlines has “wine flies free” promotion. One of the wineries gave me a box and I flew back to New York City with a case of different wines. Cool huh. (2) Tuesday (9/18/18), remnants of Hurricane Florence (WTH, barely raining) caused the Air Traffic Controllers to stop departures by a couple of hours. 100% weather related, 0% Alaska Airlines fault. This was not even the fake weather delays for which Big Three Airlines are famous. A day later out of the clear blue sky, Alaska Airlines sent me a $150 coupon. Cool huh.

  9. Note to Revenue Dept:
    Publicize immediately that we will start charging an additional $10 for checking Deodorant Sticks as baggage.
    Delta will eventually do it, and since they are always right I want to be pro-active. I know Dug will jump on board once Delta does.

  10. Who pays bag fees any more. With my credit card I NEVER pay bag fees. This is a mute point for me. By the way Alaska air does not fly to any of the places I gave been to on the last 9 yrs and the do not fly from my local airport. South west. Same thing. And no I do not want a 8 hour flight wth them to hnl

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