Fish gotta swim, birds gotta fly -- and U.S. airlines gotta squeeze every nickel and dime that they can out of their passengers, by and large. 

That explains why American Airlines, United Airlines, and Delta Air Lines are ranked right at the top of a new list revealed by the U.S. Department of Transportation.

Specifically, the ranking we're talking about involves baggage fees. During just the first three months of the year, the governemnt says American, United, and Delta took in more than $757 million charging passengers who want to bring their luggage with them.

That's part of a $1.3 billion haul across the entire industry, which represents a 18 percent bump over a year ago. It's all thanks largely to the fact that, like a group of inflationary dominoes, almost all of the airlines raised baggage fees by about 20 percent during the final months of 2018. Here's the full list:

  • American Airlines    $317.3 million
  • United Airlines        $238.5 million
  • Delta Air Lines     $201.4 million
  • Spirit Airlines        $176,1 million
  • Frontier Airlines    $91.4 million
  • JetBlue            $84.6 million
  • Alaska Airlines        $69.7 million
  • Allegiant        $63.7 million
  • Hawaiian        $20.2 million
  • Sun Country        $16.7 million
  • Southwest Airlines    $12.0 million

So, what to make of this, besides perhaps to envy that the airlines have mostly managed to take something that we all understood would be included in ticket prices just a few years back -- and turned it into a multibillion dollar annual revenue stream?

At least two things: Southwest Airlines and the U.S. Congress.

First, we have to talk about Southwest.

The commercial airline industry is low margin, and public airlines do need to scrounge every bit of revenue. But, you probably notice that Southwest is dead-last on this list.

It's not quite true to say that Southwest doesn't charge for bags. Its "bags fly free" policy applies only to the first two bags, and besides, it's more accurate to say that the cost to transport passengers' first two bags is bundled into the prices of their tickets.

But, they've been effective in associating "free bags" with Southwest. When you factor in that Southwest also either bundles or foroges other fees -- like change fees -- and that Southwest often comes in at the top of airline passenger satisfaction and branding surveys, it's worth asking wither there's cause-and-effect there.

Second, the U.S. Congress.

Because all throughout 2018, we heard rumors that Congress was going to crack down on bag fees. But at the very last minute -- literally, at 2.52 a.m. on a Saturday morning in September -- Congress passed a law that included some radical changes to the airline industry, but left out the bag fee restrictions.

Sensible people might wonder why the airlines would really care. If Congress capped bag fees at say, there would be nothing from stopping the airlines to move in lockstep to increase ticket prices to make up the difference.

In other words, they'd all just adopt the Southwest bundling strategy.

But, it turns out there's a key tax advantage to airlines when they charge fees on top of ticket prices, instead of just raising the underlying prices themsleves. 

Tickets are subject to a federal 7.5 percent excise tax. But fees aren't subject to the same tax. So moving the $757 million that American, United, and Delta took in from bag fees to ticket prices could result in more than $56 million in taxes.

Who would want to pay that if they didn't have to?

Published on: Jun 22, 2019
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