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Airlines Collected Billions in Bag Fees This Year

The airlines made a record profit in baggage fees this year. The Bureau of Transportation Statistics (BTS) confirms that airline income from extra fees is increasing dramatically: Baggage fees hauled in $1.7 billion for the first half of 2012. Is this cause for concern?

Probably not. These extra revenues pale to the income—not included in the BTS data—from selling frequent-flyer miles, mainly to banks that issue credit cards. The only airline to report gross revenue from sale of miles last year was United, for some $3 billion, so the industry's total income from sale of miles was probably around $10 billion yearly or more than $2.5 billion in the second quarter.

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Some financial writers have linked the fee and profit data, and concluded that fees were the airlines' main source of profit. But that's simplistic: You could disaggregate any part of gross revenues and conclude, for example, that revenues from flights serving Albuquerque were responsible for the profit. 

A parallel report from The Department of Transportation (DOT), "Aviation Industry Performance," is long on descriptions and short on recommendations. My initial reaction is to pose Chris Matthews' signature question to his panelists: "Tell me something I don't know." The report covers the period from 2008 to 2011, and it comes to these conclusions:

  • High fuel costs and the recession reduced the demand for air travel, resulting in huge losses to many airlines.
  • In reaction, airlines have added fees, trimmed schedules, and tweaked pricing to fill more seats, and the airlines are returning to profitability.
  • Cancellations and delays are decreasing.
  • Mergers have increased industry concentration.
  • And, in conclusion, "The data in this report suggest that some of the most significant trends of recent years ... may continue for the foreseeable future."

Wow—who knew? The report is full of appendix data, which will be a good resource for many analysts, but it leaves passengers wondering what effect it will have.

Although the DOT report describes the current state of the industry in some detail, it contains no recommendations about some of key questions, such as the contentions issue of how airlines provide fare data to the global distribution systems, which, in turn, are the main input sources for the big online travel agencies such as Expedia. It says nothing about the deteriorating quality of economy-class service, future consumer protections that might be required, required improvements in the air traffic control system, possible needs for airport expansion, and so on through the list.

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(Photo: Luggage with Money via Shutterstock)

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