US airlines reported $4.6 billion in checked bag fees in 2017 according to data released by the Bureau of Transportation Statistics. That’s often taken to mean money they’re making on checked bags, indeed the Dallas Morning News piece is framed “How much more did American make in baggage fees than Southwest in 2017?”
Here’s how much each carrier reported:
|Carrier||Baggage Fee Revenue|
|American Airlines||$1,17 B|
|Delta Air Lines||$907.6 M|
|United Airlines||$794.5 M|
|Spirit Airlines||$492.7 M|
|Frontier Airlines||$364.1 M|
|Allegiant Air||$192.6 M|
|Alaska/Virgin America||$209.9 M|
|Hawaiian Airlines||$81.2 M|
|Southwest Airlines||$46.1 M|
|Sun Country||$20.1 M|
However it’s wrong to say that’s how much money they made on checked bags.
- Ticket prices used to include bags, now they don’t and ticket prices have fallen. Unbundling means some people pay more, but not everyone, there’s a lot of ‘moving money around’ here.
- Checked bag fees also cost airlines money delaying flights and leading to less efficient use of aircraft.
- One of the big drivers of profit here is hidden and explains a lot — tax arbitrage. Airlines are saving the 7.5% excise tax on domestic airfare when they move money out of the fare and into fees.
Hate checked bag fees? It’s the tax code’s fault. And any politician who rails against these fees without mentioning the politician’s own role in the tax code isn’t being honest.
Last year a man checked a can of beer as luggage on a Qantas flight.
Are Airlines Really Taking in More Money When They Charge Checked Bag Fees?
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.
Some passengers were willing to spend more than they were being charged of course, so targeting them with higher prices raises more revenue.
But for many customers, willing to spend as much as before, fares just fall and the total trip cost remains the same. Indeed, airfares have been falling even as checked bag fees are rising.
Airlines are more sophisticated than most other businesses varying prices to charge customers what they’re willing to pay. Yet checked baggage fees fall largely on the most price sensitive customers. Leisure travelers check bags far more than business travelers, are coming out of their own pocket, and families on the whole will be more concerned with total trip pricing.
Some of the checked bag fees represent revenue at the margin the airline wouldn’t have earned if they were still bundling bag fees in with fares, but certainly not most. The point is this isn’t all new revenue to the airlines. Indeed Southwest Airlines even thinks they make more money not charging checked baggage fees.
Checked Bag Fees Impose a Cost on Airlines
Checked bag fees push more bags into the cabin. More carry on bags slow down the boarding process. And 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 try to find overhead space, then wind up going back to the front of the aircraft to gate check, plus 1-2 minutes to move gate-checked bags to the belly of the plane — and extra bags in overhead bins add a minute or two to deplaning.
Elite frequent flyers (frequently with aisle seats) board first to ensure they get bin space. Boarding aisle seats first slows down boarding — those passengers get up to let middle and window seat passengers into their row and then have to sit back down while the rest of passengers are held up getting to their rows.
A few minutes here and there is a big deal to an airline, 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 you don’t just push your schedule later into the night, you have to schedule flights when passengers want to fly and at times they’re most
Blog reader Hemal G checked deoderant onto an American Airlines Charlotte – Newark flight because he wanted to use his free checked baggage allowance.
Checked Bag Fees are Tax Arbitrage
There’s an excise tax of 7.5% on domestic airline tickets. That tax doesn’t apply to fees. So by moving bag fees out of the base fare airlines pocket a huge tax savings.
If $4.6 billion would have otherwise been part of airfares (it wouldn’t have been, and some of the checked bag fees are from international flying in any case) that would mean $345 million in tax savings for US airlines in a single year. It’s reasonable to think the tax savings is half that, however.
International routes don’t generally incur first checked bag fees — except on new Basic Economy fares. Whereas all domestic fares are going to have checked bag fees, it’s only the fares where they’re trying to mirror transatlantic low cost carriers where bag fees apply abroad. That’s because the 7.5% federal excise tax on ticket sales applies to domestic tickets and not to international tickets, so there’s far less benefit to charging checked bag fees internationally. That’s an acknowledgment that checked bag fees themselves aren’t the big business that simply summing up the charges from an accounting standpoint would have you believe.