Unable to make up for rising fuel costs over the past year
by raising airfares, airlines have begun increasing baggage fees instead.
What remains to be seen is how much revenue those increases
will bring in.
George Hobica, president of Airfarewatchdog.com, said, "The
only question is, will people do the same things with fees that they do with
fares, which is resist."
In the last week of August, JetBlue, followed by United,
raised the cost of a first checked bag to $30 from the nearly decade-long
industry standard of $25. The carriers also bumped second checked bag fees from
$35 to $40. So far, other mainline U.S. carriers haven't followed suit, but
industry precedent suggests it's likely. U.S. airlines often follow one another
with changes in service offerings and fees.
In bumping baggage fees, JetBlue and United are gambling
that the move will help cut into the profit erosion resulting from stagnant
airfares and higher costs, especially pricier fuel. Through July, U.S. carriers
spent 30.4% more per gallon on fuel than they did in the first seven months of
2017, according to the Bureau of Transportation Statistics.
Meanwhile, airlines have lacked the pricing power to recover
those added costs by raising fares. Consumer Price Index data shows that
through July, ticket prices were down 4.1% year over year.
Overall, revenue at the nine publicly traded mainline U.S.
airlines was still up 6.5% in the first half of the year, according to the
trade organization Airlines for America, but costs were up 11.6%. As a result,
the industry's pretax profit margin dipped to 7.2% from 11.5% a year earlier.
Patrick Surry, chief data scientist for the Hopper app,
which predicts when fares on specific itineraries will bottom out, said that
JetBlue and United could well be right in betting that flyers will be more
willing to pay extra for checked bags than for airfare.
"I think there is actually really different price
sensitivity," Surry said.
For one thing, he said, consumers don't have to pay for the
checked bag at the time of a ticket purchase. But more than that, online
airfare searches don't typically display baggage fees in the initial query
"When you are making that purchase decision as a
consumer, you are not necessarily thinking about those other prices you have to
pay," Surry said.
Nevertheless, in aggregate, OTAs and metasearch sites have begun
doing a better job of displaying the true flight costs in their responses to
ticket queries. In July, for example, American CEO Doug Parker said that
improvements in the way flight search engines, especially Google, ferret out
the full cost of a basic economy fare was a key driver in the carrier's
decision to do away with its basic economy carry-on prohibition.
Hobica is more circumspect than Surry about the impact
baggage fee hikes will have on revenue at JetBlue, United and any carriers that
follow their lead.
"In some ways, I think bag fees are a little bit like a
sin tax," he said. "When they raise the cost of cigarettes, people
buy less cigarettes. It may make more people say, 'The hell with it. I'm going
to pack light and fight for space in the overhead bin.'"
Meanwhile, an executive at Southwest, the lone major U.S.
carrier that does not charge for checked bags, said last week that he welcomes
bag fee increases by competitors.
Southwest chief revenue officer Andrew Watterson said, "Customers
like our no nickel-and-diming, so we find that when our competitors use
customer-unfriendly policies, it drives more business our way."