Your Checked Luggage Is Saving the Airline Industry

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Northwest
Over the years, the airline industry has been plagued by financial troubles. Most of the major U.S. carriers have had to declare bankruptcy at least once during their histories, and costs like high fuel prices present a constant challenge.

But as much as customers hate them, baggage fees and other tacked-on charges for travelers have made a huge difference to the bottom lines of airlines. Charges of $25 and up for checked bags and in-flight snacks may seem like small change, but they add up to real money for airlines. In fact, the fee strategy has been so successful that some airlines are looking for new premium services to give their customers.

"Thank You for Checking Your Bag and Keeping Us Aloft"

A recent report from Ideaworks showed how fees have added billions to airline profits -- $22.6 billion, in fact, at 50 airlines worldwide last year.

Some carriers have done a better job of shoring up their finances with fees than others. United Continental (UAL) led the way in 2011 with $5.2 billion in so-called "ancillary revenue," which includes all the added costs you pay on top of regular airfare. Delta (DAL) came in second with $2.5 billion, while bankrupt American Airlines was No. 3.

Moreover, carriers have gotten creative about finding ways to justify extra fees. For instance, even though Southwest Airlines (LUV) doesn't charge baggage fees for the first two checked bags, its early check-in feature and carry-on pet policies earned it enough revenue to put it in the top five.

Adding More Services

Airlines point to record on-time arrivals and the least lost baggage in decades as evidence that fees are working. Now they're getting creative, coming up with revenue-generating services, and not just convenience fees.

For instance, American just came out with a service that will deliver your bags directly to your home or hotel, allowing travelers to avoid having to wait at baggage carousels to pick up checked bags after their flights. With fees starting at around $30, American and delivery partner BAGS VIP Luggage Delivery hope that enough customers will be willing to pony up for convenience to justify the offering.

Still, airlines need to be careful. High fees have made it cheaper in some cases to use traditional delivery services like United Parcel Service (UPS) to send luggage in advance, rather than taking it with you on your flight. Although a $25 fee is still cheaper than using a regular shipping company in most cases, higher fees for oversized bags make it worth researching and comparing costs.

Like it or not, air travelers can expect to see more such fees in the future.

For more on travel and your money:

Motley Fool contributor Dan Caplinger didn't appreciate the $95 in baggage fees he paid on his recent vacation. He doesn't own any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Southwest Airlines.


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18 Comments

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mypathoflight

We are doing a cruise later this year and after comparing airfares found that Southwest would save over $300 dollars between base fare and baggage fare. That includes driving 100 miles to another city AND staying one night in a hotel!

August 17 2012 at 9:23 PM Report abuse rate up rate down Reply
drm767

QUESTION.........Why does this article seem like it was paid for by AIRLINE Companies?.... Baggage seems very similar to this article I read on here the other day. "illusory fees".....

http://www.huffingtonpost.com/2012/08/07/spirit-airlines-slapped-with-lawsuit_n_1752955.html

August 17 2012 at 5:14 PM Report abuse rate up rate down Reply
Richard

I don't have this issue because I DON'T FLY THE AIRLINES! Enough humiliation and being treated like Achmed the terrorist until proven otherwise. I will drive, thank you very much.

August 17 2012 at 2:33 PM Report abuse rate up rate down Reply
cjc

Not MY checked luggage. I refuse to fly now. I find it interesting that passengers whine about the extra $25.00 or so in bag fees, and yet blindly accept the fact that they are being irradiated by unregulated scanners. "Thank You for Checking Your Bag and Keeping Us Aloft". Sorry about the cancer.

August 17 2012 at 2:28 PM Report abuse rate up rate down Reply
steve

Traveler with very heavy bags should contact FEDX or UPS for their charges and the bags will be delver to the door. The bags will not likely get lost, or items stolen from them. HINT: Please put your phone number's and name, and where you are traveling to (do not put your home address in your luggage).

August 17 2012 at 12:56 PM Report abuse rate up rate down Reply
macsandcats

Next up...pay toilets.

August 17 2012 at 12:51 PM Report abuse rate up rate down Reply
1 reply to macsandcats's comment
labourboss

It has been thought of by Ryanair.

August 17 2012 at 3:10 PM Report abuse rate up rate down Reply
jhrooney

The reason airlines like the fees so much is they are not taxed like tickets. Since deregulation the prices of tickets has come way down, but service is lousy and will stay that way. The airlines went to the hub and spoke system in the 70's and really have never made money since. They fly lots of planes at odd times to make the connection schedule at the hubs. So people, decide what you want. Getting a roundtrip airline ticket for $150 doesn't add up to a profitable business. You can blame management, the unions, and the wall paper, but it won't change a thing. For those of you that want the extra service, first class and business classs are still available. You can fly LAX to Sidney for $1500 coach and $7,000 business class so the options are available. It is up to you.

August 16 2012 at 1:02 PM Report abuse rate up rate down Reply
choicef

are u kidding me??? thats offensive as is the top execs salaries and perks- want to save the airlines?? cut overhead ie; outrageous ceo salaries and offer service that will make customers come back survival of the fittest- if u cant cut it u close the doors !

August 16 2012 at 11:33 AM Report abuse rate up rate down Reply
mielkele

Returned yesterday from a trip with SW. Efficient as usual exept 3 of their scanners in Baltimore were not in use making for long lines. I use them because of their prices and luggage policy. I do wish however that they and others would enforce their carryon size rules.

August 16 2012 at 10:12 AM Report abuse +1 rate up rate down Reply
1 reply to mielkele's comment
Frank

Agree that Southwest runs a good operation. We always buy the early check in option....don't want to be a "C" for center..lol. Couldn't agree more about the carry rules being enforced.

August 16 2012 at 11:20 AM Report abuse +1 rate up rate down Reply
ewan72403

As an airline CEO, I would have chosen to add $25 per ticket than appear as chintzy as I do charging someone to check a bag when that has never been done.

August 16 2012 at 9:32 AM Report abuse rate up rate down Reply
1 reply to ewan72403's comment
colonelbuffb52

This is exactly what should have been done. …but the problem lies in the fact that search engines pull the top finds by cost. Unless they all agree to do it, none of them will because their fares will always show up last….and apparently, the public is too stupid to realize that some airlines would charge for bags, and others wouldn't, and do the math for themselves. Sadly, this is probably true….

August 17 2012 at 11:50 PM Report abuse rate up rate down Reply