US Airlines Didn’t Really Make $4.6 Billion in Checked Bag Fees Last Year. Here’s Why.

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
JetBlue $289.8 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
$4,577 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.

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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Comments

  1. You are implying that when airlines started charging bag fees of $25 that they lowered airfare by $25 that day. I don’t recall that happening.
    As a matter of fact, I content that the variance in airfare has NOTHING to do with airlines starting to charge bag fees. I’d like to meet the CEO/CFO who said: “We are charging more for bags now, let’s lower the base fare”.

  2. Deltahater, you are correct. We are being served the “unbundling” myth by apologists for airlines and anti-regulation, libertarian ideologues. The facts of “unbundling” is that it’s mainly just a way for airlines to increase their revenue at the cost of consumers. Increasing their revenues at the cost of the taxman’s coffers is not what drove unbundling, nor is the “unbundling” hit to consumers likely to improve even if the referred to US excise tax were eliminated or applied to baggage fees too.

  3. No I am not ‘implying that when airlines started charging bag fees of $25 that they lowered airfare by $25 that day’

    First I am not saying airfare fell by the same amount bag fees rose.

    Second fares have fallen while fees have risen, some of that is that there’s a certain amount people will pay for travel — demand doesn’t shift as the total cost of travel rises — so airlines are forced to cut fares to compensate. That is a partial phenomenon not a total phenomenon. It is a form of price discrimination but one that is poorly targeted since it attempts to raise price on those least willing to pay (families) rather than those most willing to pay (business travelers).

  4. @ GUWONDER – If you are blaming “anti-regulation libertarian ideologues” for the high costs of travel these days, you should research air travel costs during the days of airline regulation. Perhaps that was before you were born.

    Prior to airline deregulation, many people could not afford to fly anywhere. Many never stepped foot on an aircraft until the age of deregulation.

    Flying is not a right and the airlines don’t owe us cheap transportation, a free meal, or free baggage transport. Thanks to competition and supply and demand, sometimes we get all of these and sometimes none.

  5. So the airlines are realizing some what the same cash flow (I’m being very loose with terms) but not paying tax on a part of that cash flow (7.5% on domestic tickets)? While using the services of the government funded system (FAA) ……makes Southwest a star for paying taxes and the other airlines an example of why our public systems are falling apart.

  6. als, I think you should read up on how the FAA is funded…because it’s not on the backs of public tax dollars. Major commercial passenger and cargo airlines fund the system directly, if anyone is a drain on the system it’s General Aviation that pays no taxes or user fees.

    Additionally what Gary points out that the general public seems to miss is that airfares havent just been stagnant for the past 20 years, prices have actually dropped. Show me another good or service anywhere that’s done that? Yes, bags cost money now, but there are so many ways to avoid those fees now that it’s on you if you’re still paying them.

    Also, I fly over 100k miles per year and I can’t remember the last time I was on a flight that left late because of gate checked bags. Maybe 4-5 years ago but the problem has subsided as customer behavior has changed and airlines have increased or adjusted the boarding window.

  7. From the FAA web site here’s what I understand the 7.5% tax is about (the tax not being paid on checked bag fees):

    Airport and Airway Trust Fund, also known as the Aviation Trust Fund, helps finance the Federal Aviation Administration’s (FAA) investments in the airport and airway system, such as construction and safety improvements at airports and technological upgrades to the air traffic control system, as well as FAA operations, such as providing air traffic control and conducting safety inspections. ”

    “The Trust Fund provides the primary source of funding for FAA and receives revenues principally from a variety of excise taxes paid by users of the national airspace system. The excise taxes are imposed on domestic passenger tickets, domestic flight segments, and international passenger arrivals and departures, and on purchases of air travel miles for frequent flyer and similar programs. In addition, taxes are imposed on air cargo waybills and aviation fuel purchases. The largest source of excise tax revenues are related to transportation of passengers.”

  8. –Good article. I wish they would make bags free again. It would greatly reduce the pain finding space for my bag in the overhead. I usually do not check bags and if I did, my bags would be free because of either elite status or credit cards.
    –Many do not remember how expensive air travel used to be. I remember “Peoples Express” very very fondly. When round trip SFO-NYC was $300 in coach, Peoples Express was offering it for $100. They did not survive, but their heart was in the right place. Also, remember Laker Airways founded by Freddie Laker which flew between Gatwick and JFK. His prices were so low that his company went bankrupt, but his popularity was so high that he was Knighted.
    –To conclude, people forget, in the old days, if you wanted to go somewhere cheaply, you did not hop on Spirit, you hopped on a Greyhound. Despite all of my complaints about the cost savings measures of airlines, I have no desire to go back to the regulated days.

  9. I’m not sure what airlines you have been flying…but I haven’t seen a decrease in airfares recently…just the opposite! Yes, ten + years ago (prior to all the mergers) fares were lower…but come on let’s talk about the last two years.
    Also, I dispute your comment “Checked bag fees also cost airlines money delaying flights and leading to less efficient use of aircraft” What I have found is the airlines are boarding sooner than normal to accommodate these conditions. Airlines love the checked bag fee’s…extra money to the bottom line.

  10. By far the biggest reason for unbundling is the internet and meta-searches for airfare + consumers buying the tickets on their own without going through a travel agent. Right now, Joe Merica buys his plane tickets by going to Expedia/whatever, typing in his dates, and picking the lowest cost flight. Airlines have a significant incentive to appear at the top of that list (by offering the lowest base fare). Search engines that attempt to qualify results and help inexperienced travelers are [ironically] much more niche and really only savvy travelers know about them.

    This absolutely HAS driven down base airfare … as has the introduction of basic economy … not because the airlines reduced fares exactly $25 on the same day they instituted bag fees (or immediately reduced fares in markets where BE was introduced) … but because they want to be able to compete most effectively with each other in the environment where sales are actually made. Large corporate travel departments, federal gov’t, etc were never making purchases via public channels or at published fares… this is about competing at the margins.

  11. Now Spirit is really smart – they charge more for carry-ons than for checked luggage, therefore enough people check their bags that Spirit have been able to reduce their boarding time and increase the number of flights.

  12. I would think airlines would be better off, in the long run, by including one free bag with every ticket, but the customer chooses whether that bag is a carry-on or checked (the personal item allowance would remain the same). That would resolve many of the boarding/deplaning/turnaround issues while still providing plenty of fodder for fees. I much prefer a checked bag, but know many business/frequent fliers would stick with their carry-on.

  13. Parker is looking at adding seats in the cargo hold and calling it really basic economy.

  14. Complain all you want, but I can think of no service sold in America that is easier to get “more than you paid for” than airline service. Heck, that is pretty much the whole basis of this blog! I’m not going to cry for any of the folks who are reading this thread. If you’re not personally taking advantage of subsidized air travel, thanks largely to the USA banking industry, you’re doing something wrong! Meanwhile, if airlines were making obscene profits, I’d feel worse about bag fees. But their profit margins remain well below that of most industries.

  15. 1st: Bag fees are arbitrary: Same $25/bag fee for JFK-DCA as for JFK-Hawaii, or flights involving multiple stops.
    2nd: Carry on luggage=long TSA lines.
    3rd: SWA charges the same as legacy carriers, and includes two free bags.
    4th: Credit card membership waives 1st bag fee, unless you are not the primary card holder, and you use your spouse or parents card.
    5th: Luggage and carry on rules and fees are too complicated.
    6th: Airlines are alienating loyal customers with surcharges. SWA figured this out and is still taking customers from legacy carriers.
    Delta recently figured out how to swindle $50 of luggage fees out of me. That combined with poor seating and basic economy treatment at regular fare price, but mainly the luggage fee despite my wife’s Delta Credit card membership and airfare purchase, and I can promise that next time, I will fly UAL/AA/SWA if the fare is equivalent. No luggage fees and one less fare. Its true they still fill up the airplanes, but not with my money.

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