The U.S. Government Must Stop Encouraging Airlines To Keep Raising Checked Bag Fees

American Airlines led the way this week with an increase in its first checked bag fee to $40 (with a $5 discount for prepaying). That was the highest fee among the largest U.S. airlines.

Earlier in the month JetBlue quietly raised its first checked bag fee paid within 24 hours of travel to $45 and didn’t even announce it. And now United Airlines has matched American’s fee.

Delta Air Lines still charges $30 for first checked bag, and Southwest Airlines still includes two free checked bags with every ticket.

  • Politicians regularly bash airline fees like checked bag costs
  • But they don’t do anything about it
  • Even though a big impetus for higher and higher fees is their fault

Domestic airfare is subject to a 7.5% federal excise tax. Airline fees are not. So there’s a huge incentive in the tax code to unbundle – to move features out of the fare, and to increase the price of those features, even when total revenue between travel and those features does not increase.

Each of the three largest U.S. airlines generates about $1 billion per year in checked bag fees. That means a tax savings to each of around $75 million. (In fact these fee totals are higher, but aren’t all for domestic travel.)

Airlines don’t pay this tax on seat fees, pet fees (American just raised theirs this week, too), or priority boarding fees. Airlines like Spirit and Frontier charge extra to book online – anything that’s optional can be considered a fee and not subject to this tax. The total price to the customer stays the same, but they’re shielding part of the ticket cost from the 7.5% tax.

President Biden has campaigned against fees, including checked bag fees, for the past two years. His administration has proposed new airline fee disclosure rules that increase power to airlines. What his administration hasn’t done is pushed for legislation to undo the differential tax treatment between airfare and fees.

It is time to end differential tax treatment for airfares versus fees, since that creates a perverse incentive to shift customer spending from fares into fees. Any politician who rails against airline fees without addressing the role they have in legislating the tax code is unserious.

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, 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. Good point. In fact ANY fees imposed as an added cost should be taxed at a very high rate, let’s say 20% This should include “resort ” fees, “convenience ” fees, “credit card” fees and all the other nonsense fees that can sometimes double the cost of a ticket or room or meal.

  2. Amen. Higher checked bag fees perversely create an incentive to bring carry-ons. Which adds to the dreaded onboard scrum for claiming overhead space.

  3. So what would you suggest? Airlines raising their ticket prices by $43? Airlines started charging for checked bags in 2008 and I believe this is the first increase in fees since then which is basically inflation adjusted (A website calculated $25 in 2008 is roughly $36 now). Yea, it is a shock to the system and raising it $15 seemed like a lot to me until I researched it and found out the fee is from 2008.

    So if they don’t raise the fee, what would be your solution to rising costs?

  4. I think Gary is completely wrong on this. The government will happily tax the luggage fee and this will do nothing to curb the cost to customers. Hotel resort fees are typically taxed the same way as room and such tax structure did nothing to continuing cots increase and introduction of destination fees. Some of us rarely check any bags and, personally, I do not see the reasons to travel with enormous suitcases. But if you decide to pack a 50 lb bag why others should be paying for that?
    Regarding the politicians, airlines represent an easy target.

  5. “Airlines” don’t pay these taxes, their passengers do, as they are included in the fare. If the government decided to expand these taxes to include fees, the fees would go up by 7.5%, so a $40 fee would become a $43 fee.

  6. @Independent Thinker wrote “Airlines started charging for checked bags in 2008 and I believe this is the first increase in fees since then ”

    In fact we generally saw checked bag fee increases in 2020 and in 2018

  7. So, how does Southwest include two “free” bags for checking and still maintain competitive airfares?

    PS: Curious, why is there a pic of the leader of North Korea inspecting a baggage carousel attached to this article???

  8. Easy enough solution: charge double the excise tax on fees. If you want a free two-fer the government could do the same on resort fees.

  9. Shouldn’t we reserve judgment until we know what Kim Jong Un wants? After all, his photo is in the article. He always knows best?!

  10. Taxes and fees for things whether you use it or not, for societal good like roads and schools, are understandable. But cost for checked or even carry-on luggage should be borne by the user and not subsidized by everyone. Pay to use is good in this case.

  11. It should be taxed. It would lead to more price transparency. Seat fees too. Resort fees as well.

  12. Whereas it may be valid to tax all the extraneous fees as well as the ticket, ultimately it is the consumer that pays these taxes. Any tax will be added to the cost of the passenger pays.. Therefore if the baggage fee is $40 and a tax of 7% is imposed, the consumer will pay $42.80.

    It is amazing how much Southwest Airlines is leaving on the table by not following the other airlines in the imposition of a baggage fee. One wonders how much longer SWA will hold out.

  13. The government is not doing anything about it because Congress is where ideas go to die, and where the airlines’ minions in Congress are paid to see that nothing happens. Nowadays an airfare is simply the opening fee for a file to stuff all the fees.

  14. Rubbish. Just look a little north where fees are subject to GST.

    The real reason airlines unbundle is because they want to appear to offer the lowest fare. People will choose the airline even if the fare is only $1 cheaper. They NEVER compare the final price because they can’t..

  15. Since I consider the total cost when buying a ticket, I bought a different JetBlue class of ticket this time because checked luggage cost more so It was no longer as economical to buy Blue Basic.

  16. We should not be surprised if a corporation discovers and exploits ways to get a direct earnings line to EBITDA.
    Stock performance requires profitability and quarterly increases. That’s capitalism.
    If only 25% of AA passengers pay the $40 fee, that is $775M /year
    Math: ((77.5 mil passengers in 2023 * 25%)* $40)
    Who in their position would say no to nearly a Billion Dollars in untaxed revenue?
    As Gary made clear in this case, as long as there exists items that are not taxed, increases in those items will likely continue to rise until consumer pain or legislative action limits the use of those decoupled items.
    Right now, it’s free market economy rules: the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any other external authority.
    You travel, you want to take stuff, you pay.
    It doesn’t take a room full of MBAs to quickly say: Charge more for that shi… stuff!
    Shaking our fist, gnashing teeth or deciding to wear two weeks of clothing on a plane to avoid fees won’t cut it.
    Nerd wallet has a useful article: “American Airlines Baggage Fees: How They Work, How to Avoid Them”.

  17. There is a rationale for a la carte pricing. But whatever the charge for checked bags, the charge for carry on should be at least as large if not more.

  18. Wait, I was wrong… 200 million passengers per year…

    That’s $ 2 BILLION per year untaxed revenue

  19. Checked bags should be free.

    There should be a fee for carryons for non elites. That expedites boarding and disembarkation

  20. I say raise checked bag fees to $100 seat fees to $150 and overweight fees @ $2/lb for passengers over 150lbs.

    And give skinny lifetime platinum me, free tickets in MCE

  21. taxes on bags will hit the lowest income level consumer as they do NOT have status NOR credit cards that give them free bags. Frequent flyers do NOT pay bag fees.

    Three+ Bags: $125 per bag
    Oversize Bag: $125 per bag (max 80 inches)
    Overweight Bag: $100 per bag (51 – 70 lbs.)

    $125 per bag (71 – 100 lbs.)

  22. How ironic the government telling businesses how to operate when they keep taxing the hell our of us and spending beyond revenues.

  23. The 7.5% tax that is not currently added to the bag fee is a sales tax that is ultimately paid by the customer being charged the fee. For the comment about EBITDA and untaxed revenue (BTW, revenue is not taxed at the federal level; some states impost a franchise/excise tax on revenue for annual business licenses), that line on the financial statement is Earnings BEFORE Interest, TAXES, Depreciation and Amortization. The airline will still be subject to income taxes for the profit that flows down from these fees.

  24. Excise taxes are paid by the customer, not the airline, so the airlines are not saving money that way. However, bag fees are exempt from income taxes, which is what incentivizes the airlines to charge them. On the flip side, ticket prices have lowered, so the overall cost to fly hasn’t really changed, and the situation actually benefits flyers who can avoid checking a bag.

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