Those $25 and $35 checked-bag fees being paid by airline passengers are adding up.
For the first time, U.S. airlines have cracked the $1 billion threshold in baggage fees collected in one quarter, according to data released Tuesday by the U.S. Department of Transportation. The 13 reporting airlines boosted their bag-fee earnings 6.2 percent to $1.02 billion in the July-to-September period from $959.8 million in the year-earlier quarter.
At Hawaiian Airlines, bag fees generated a company-record $22 million in revenue during the third quarter. That was up 5.1 percent from $20.9 million in the year-earlier quarter and accounted for nearly a third of the
$70 million in net income that Hawaiian earned during the three-month period. Hawaiian’s previous high for a quarter was $21.5 million in the second quarter of this year.
Hawaiian, which ranks ninth among U.S. carriers for baggage fees, collected $61.7 million through the first nine months of the year and is on pace to generate in excess of $80 million for 2015.
“The increased baggage fee revenue comes from more travelers flying with us to Hawaii,” Hawaiian spokeswoman Alison Croyle said in an email. “Hawaiian Airlines flew 4.6 percent more passengers in the third quarter of 2015 compared to the same period a year ago. HawaiianMiles members receive discounted first and second checked bags on neighbor island flights. In the third quarter, 88 percent of our revenue came from ticket sales.”
Checked-bag fees, which American Airlines introduced in 2008 to combat high fuel prices, continue to produce an important income stream to carriers even as fuel costs have dropped dramatically over the past year. But baggage fees are just one of the ancillary fees that airlines count on to bolster their revenue. Other fees include reservation and cancellation fees, extra comfort fees, primary boarding fees, boarding pass fees, premium meal fees and the like.
“We mere mortals can’t conceive what airlines can conceive when it comes to extra fees,” Colorado-based airline consultant Mike Boyd said. “Ancillary revenues are absolutely necessary for airlines to make money today.”
Croyle said Hawaiian’s value-added revenue per passenger during the third quarter increased by 70 cents to $21.52 due to “the continued success of our Extra Comfort seat product.” She said the airline expects moderate growth this quarter based on the continuing success of its existing products, including its co-branded credit card and Extra Comfort seating.
Most airlines charge $25 for a first checked bag and $35 for a second checked bag on domestic flights. But Boyd envisions the possibility that airlines someday could increase bag fees based on the length of trip.
“You might see something like $25 or $35 for flights up to 1,000 miles and then $35 or $45 for longer trips,” Boyd said. “If you look at what Spirit Airlines is doing, it’s a pretty good template for what other airlines could do. Spirit charges you for getting a boarding pass at the airport, for getting onboard earlier, and they may start charging baggage fees on the basis of length of trip.”
Already, Spirit is charging up to $100 for carry-on bags, and this holiday season is increasing the fee for bags by $2 if tickets are purchased after a certain date.
Boyd said it makes financial sense for airlines to continue charging for bags.
“Consumers are willing to pay it, and airlines won’t leave money on the table,” Boyd said. “One of the biggest criticisms of Southwest Airlines in the industry is that they don’t charge for bags and they’re leaving billions of dollars on the table every year.”
The 13 reporting U.S. airlines also collected $755.2 million in fees during the third quarter for reservation cancellations and flight changes. That was down 0.4 percent from $758.6 million in the year-earlier period.
Hawaiian’s take from reservation cancellations and change fees was $5.3 million. That was down 3.5 percent from $5.5 million in the year-earlier quarter.
Small local carrier Island Air, which has been reducing operations, brought in just $572,000 from baggage fees, down 47.4 percent from $1.1 million in the year-earlier quarter. Island Air received $67,000 in cancellation and change fees, down 59.1 percent from $164,000 a year ago.