Airlines Collect $3.4B in Bag Fees in 2010

Passengers hate them, but airlines can't afford to give them up - those aggravating bag fees. U.S. airlines collected $3.4 billion for checked luggage last year, according to a government report issued Monday. That's up 24 percent from 2009 and a big reason the industry made money again after three years of losses.

In 2010, the major airlines made a combined $2.6 billion in profits, less than they collected in bag fees. The fees - typically $50 round-trip for the first piece of checked luggage and $70 for the second - allow the industry to navigate between rising fuel costs and customers who expect rock-bottom airfares.

"If it weren't for the fees, the airlines would most likely be losing money," said Jim Corridore, airline analyst with Standard & Poor's.

That's little comfort to fliers who have increasingly felt nickel-and-dimed by the airlines and now face a summer of higher airfares and packed planes.

"I feel like I am constantly being hit by little things by the airlines," said Lauren DiMarco, a stay-at-home mother from Wenham, Mass. "We're already paying so much money."

Delta generated the most revenue from bag fees - $952 million - followed by the combined United and Continental at nearly $655 million. American collected $580 million and US Airways $513 million, according to the Department of Transportation. None of those fees are subject to taxes.

Airlines aggressively raised ticket prices early in the year. But those increases couldn't keep up with the price of jet fuel, now 37 percent more than last year. Some more recent attempts to raise fares have failed because passengers balked at paying more.

So instead, the airlines focus on fees.

"Unfortunately, for the airlines when they try to roll $50 into the ticket prices, people stop buying tickets," said Rick Seaney CEO of FareCompare.com.

Earlier this month, Delta and United raised fees to check a second bag to Europe. Delta also added a fee for second bags checked to Latin America and ended its $2 discount for paying fees in advance online. Last week, several airlines did remove excess-baggage fees for the military after Delta charged a group of 14 soldiers returning from Afghanistan $200 each. A YouTube video of two of the soldiers complaining was viewed almost 200,000 times in one day.

American Airlines introduced fees for the first checked bag in 2008 as the price of oil skyrocketed. The other airlines, except JetBlue and Southwest, have since followed and progressively increased those charges. Southwest has used its refusal to charge fees as a marketing tool.

Many fliers are still unaware of the fees or don't realize how much they have to pay until they arrive at the airport ticket counter.

"They find out very quickly when they are asked to pull out their credit card," Seaney said.

The airlines aren't alone in charging fees that irk customers. For instance, banks charge customers to use out-of-network ATMs and levy fees for insufficient balances. But there is something especially irritating about paying a fee just before you board a plane for your long-awaited vacation.

Buoyed by the success with bag fees, the airlines are charging for all sorts of extras.

They are now selling passengers the option to board early, get more leg room and to earn extra frequent flier miles. There are also fees for oversized bags, changing tickets, making a reservation over the phone and - on some airlines - reserving a seat in advance.

Fees for changing reservations or placing them via phone generated $2.3 billion for the airlines in 2010, down 3 percent from the year before. The Department of Transportation expects to release more figures on the other fees at a later date.

All of these fees add up to about 6 to 7 percent of overall airline revenue.

For families looking to book a vacation, the fees can add up. That $98 round-trip fare on a discount airline like Spirit isn't such a deal when you tack on $45 each way for a carry-on plus $20 to get an assigned seat and $3 for a bottle of water.

"It makes it very difficult for comparison shopping," said Anne Banas, executive editor of travel advice site SmarterTravel.com.

New rules from the Department of Transportation will require airlines, starting Aug. 23, to "prominently disclose all potential fees" on their websites prior to a ticket purchase. In the meantime, fliers just need to do their research before heading to the airport.

Henry Harteveldt, an airline analyst with Forrester Research, said airlines have done a poor job of explaining the fees to customers. Still, despite the bad publicity, if given the chance to do it all over again, Harteveldt said the airlines certainly would.

He expects more charges in the future. A checked-bag fee based on distance flown is one possibility. Or fees could be cheaper if a ticket is purchased months in advance but much more expensive if paid on the day of travel.