Airline profits will be helped considerably by lower jet fuel prices, triggered by the price drop in crude oil. Some industry observers believe that the economic recovery has allowed the airlines to jack up ticket prices as more people fly. Few things, however, have helped carrier margins more than fees it charges passengers, fees that barely existed a decade ago. For example, U.S. carriers brought in $960 million in bag handling fees in the past quarter, according to the U.S. Department of Transportation, and nearly as much from other services.
It used to be that airlines provided free meals, did not charge bag fees and offered travelers free blankets and pillows. A simple box of food currently costs as much as several dollars. The most bothersome fees are those charged for people who change flights. These charges can be complex enough to overcome the analytic skills of the most frequent fliers. Additionally, frequent fliers often find the value of their bonus miles have been eroded by new airline policies.
The Department of Transportation announced as part of its “3rd Quarter 2014 Airline Financial Data” report that:
In the third quarter, passenger airlines collected a total of $960 million in baggage fees, 2.1 percent of total operating revenue, and $759 million from reservation change fees, 1.7 percent of total operating revenue. Fees are included for calculations of net income, operating revenue and operating profit or loss.
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These fees for individual checked items can be extremely high. American Airlines Group Inc. (NASDAQ: AAL) charges between $25 and $200 on domestic flights, depending on how many bags get checked. Delta Air Lines Inc. (NYSE: DAL) charges $25 for the first checked bag and $35 for the next one.
Most fees collected have risen from the third quarter a year ago. Total fees for baggage have risen from $881 million to $960 million in the just-reported quarter. Reservation change fees in total have risen from $735 million to $759 million. At the current rate, money from baggage fees per quarter could rise above $1 billion.
The airlines have passengers captive. The alternatives to flying are restricted to long drives and bus or train trips. As is true in most industries, it is good to offer the only good alternative, no matter what the service.
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