My Account Menu

CAPA Login


Register to trial CAPA Membership!

Baggage fees a goldmine for US carriers

7-Oct-2009

US air fares have fallen sharply as a result of the recession, making baggage fees (and other ancillary revenue items) somewhat of a lifeline for the airline sector. Baggage services have quickly become a flashpoint for airline differentiation and a catalyst for marketing innovation.

For example, United Airlines this week introduced an all-you-can-carry annual fee for luggage services. Passengers can pay USD249 to check two bags every time they fly United or United Express over a 12-month period. The annual fee covers domestic or international services and standard checked bags for up to eight companions travelling under the same confirmation number as the subscriber (although the fee does not cover charges for oversized and overweight bags).

In the past three months, the Big Three US carriers have all implemented a USD50 fee to check a second bag on services to Europe

Delta originally planned to charge a second-bag fee on all international services, not just to Europe, stating it expected to collect USD100 million p/a if the new fee was implemented on a global basis. However, it scaled back the plan to cover only European services, as other carriers failed to match the charge. It also raised product compatibility issues with its alliance partners.

USD670 million in baggage fees in second quarter alone

The US airline industry collected USD670 million in baggage fees in 2Q2009, up 18.2% from first quarter levels, and a massive 275.7% year-on-year increase, according to Bureau of Transportation Statistics (BTS). 

US airlines’ baggage fee revenue collection: 1Q2005 to 2Q2009 (USD, ‘000)

Baggage fees add up, especially as ticket-related revenues decline

In the past six and 12 months, the carriers have collected a combined USD1.2 billion and USD2.1 billion, respectively, in baggage charges. These revenues sources are increasingly important as passenger revenue declines (in the quarter, revenue from seat sales declined a precipitous 24% year-on-year to USD22.6 billion), due to the global economic crisis.

US airlines’ passenger transport revenues: 1Q2006 to 2Q2009 (USD, ‘000)

American and Delta the biggest collectors

American collected USD118.4 million in baggage charges in 2Q2009, more than any other airline, although Delta was only USD86,000 behind.

US airlines’ baggage fee revenue collection: 2Q2008 to 2Q2009 (USD, ‘000)

2Q2009 rank

Airline

2Q2008

3Q2008

4Q2008

Q2009

2Q2009

Year-on-year change

1

American

37,101

94,075

113,856

108,117

118,442

219.2

2

Delta

42,861

47,489

60,542

102,838

118,356

176.1

3

US Airways

17,917

67,928

93,759

94,227

104,138

481.2

4

United

19,721

42,283

58,771

59,102

67,412

241.8

5

Northwest

15,685

32,695

63,578

59,787

67,186

328.3

6

Continental

16,361

21,180

49,287

55,616

63,157

286.0

7

AirTran

6,099

7,867

12,749

30,881

40,535

564.6

8

Spirit

n/a

n/a

n/a

n/a

16,178

n/a

9

Frontier

1,245

2,928

10,018

12,456

13,463

981.4

10

JetBlue

7,275

12,119

11,504

12,603

12,353

69.8

 

Industry Total

178,214

350,061

498,568

566,328

669,572

275.7

The LCCs, AirTran, Spirit, Frontier and JetBlue ranked seventh to tenth by revenue collected, respectively, behind the six majors, although this has more to do with their size than their baggage fee policies. 

As a proportion of total passenger revenue, baggage revenues were much more significant for Spirit Airlines (9%), AirTran Airways (6.7%) and Frontier (4.9%) than the network carriers. 

US airlines’ baggage fees as a percentage of passenger transport revenues: 1Q2006 to 2Q2009 (USD, ‘000)

Intended to negate increased fuel costs, but still hanging around

Commencing in early 2008, most of the US carriers commenced charging for the first and second bags checked by passengers.  Previously, additional charges were not applied until the third bag was checked (see table below for full details).

The claimed reason behind the baggage fees was to help the carriers offset high fuel prices, which have subsequently fallen from their highs of around USD145/barrel (WTI) to around USD67/barrel (they are currently down 31% year-on-year).

Some US airlines now covering as much as 38% of their total fuel costs in the form of baggage fees, with Spirit, AirTran, US Airways and Frontier’s baggage fees reaching 20% or more of total fuel costs in the second quarter.

US airlines’ baggage fee as a percentage of total fuel costs: 2Q2008 to 2Q2009 (USD, ‘000)

Tougher booking conditions also boost revenues

Revenue from fees imposed for cancelling or rebooking flights by all US airlines, meanwhile, rose 52% in 2Q2009, while revenue from miscellaneous fees (including assigning seats, flying pets and fees paid to the airlines for collecting airport passenger facility charges) totalled USD673 million in the quarter, up 19% year-on-year.

Combined, baggage fees and additional charges increased 65% year-on-year, to USD3.6 billion in the quarter.  

See related article: Ancillary revenues to jump to over 12% of worldwide airline revenues this year and next

JetBlue, Southwest and Air Canada go against the trend with free first bag check

United Airlines kicked off the rush in implementing baggage fees in Feb-2008, when it announced a fee for a second checked bag. American took this a step further in May-2008, announcing that it would commence a first baggage charge. 

Most carriers have imposed first baggage fees, with Southwest Airlines, JetBlue and Air Canada the only exceptions among major US carriers. Southwest, especially, has used this position as a point of difference and has continually reaffirmed that it has no intention to charge passengers for checked baggage. But as Southwest’s margins, in particular, are squeezed, it would not be surprising if it were to back track on this at some point. The revenue potential could be too powerful too ignore.

The other carriers generally charge USD15-20 for the first bag, and USD25-30 for the second checked bags.

North American airline baggage fees

Airline

Baggage Fees

Oversize/overweight bags

Air Canada

Two bag allowance in economy class

Domestic US economy:

  • Overweight (23-32kg) and oversize (160-292cm): CAD75;
  • Additional baggage: CAD100;
  • Overweight (23-32kg) and oversize (160-292cm): CAD100.
  • Additional baggage: CAD225

Air Tran Airways

  • 1st checked bag: USD15.
  • 2nd:  USD25
  • Excess Baggage: USD50 for each piece after the first two bags;
  • Overweight Baggage (51 to 70 pounds: USD49;
  • Overweight (71 to 100 pounds): USD79;
  • Overweight (Over 100 pounds): Not accpeted
  • Oversize Baggage (71-80 inches): USD79;
  • Oversize Baggage (Over 80 inches): Not accepted

Alaska Air/

Horizon Airlines

  • 1st checked bag: USD15;
  • 2nd: USD25;
  • 3rd: USD50.
  • Overweight (51-100 lbs): USD50;
  • Oversize (63-80 in): USD50;
  • Oversize (81-115 in): USD75.

Allegiant Airlines

When purchased at time of booking:

  • 1st checked bag: USD15-20;
  • 2nd: USD25.

If purchased at flight check-in:

  • 1st: USD35;
  • 2nd: An additional USD35

Bags that are "Gate Checked" will incur a USD35 fee.

The total number of bags allowed may not exceed five per passenger.

American Airlines

Within the US, the US Virgin Islands, Puerto Rico and Canada (domestic):

  • 1st checked bag: USD20;
  • 2nd: USD30;
  • 3rd, 4th and 5th: USD100 per piece;
  • 6th+ bags: USD200 per piece.
  • Overweight (23-32kg): USD50 per piece;
  • Overweight (32-45kg): USD100;
  • Overweight (over 45kg): Not accepted;
  • Oversize (larger than 157cm): USD150 per piece;
  • Oversize (more than 292 cm):
    Not accepted

Continental Airlines

Economy-class within the US, Puerto Rico, USVI and Canada:

  • 1st bag: USD15;
  • 2nd: USD25;

USD5 surcharge for bags checked at the airport, at the curb or with a Continental representative (as opposed to online).

  • Overweight (23-32kg): USD50;
  • Overweight (32kg+): Not accepted. 
  • Oversize (exceeding 157 cm): USD100;
  • Oversize (exceeding 292 cm): Not accepted.

Delta Air Lines

Within US, USVI and Puerto Rico (domestic):

  • 1st: checked bag USD15;
  • 2nd: USD25.

USD5 surcharge on each of the first two checked bags when checking in via ticket counter, kiosk, or curbside. 

Excess baggage (domestic)

  • Bag 1: USD15;
  • Bag 2: USD25;
  • Bag 3: USD125;
  • Bags 4-10: USD200 each.

Overweight baggage: (domestic)

  • 23-32 kg: USD90 each;
  • 33-45kg: USD175;
  • Over 45g: Not permitted.

Frontier

Domestic Economy:

  • 1st checked bag: USD15
  • 2nd item:  USD25
  • 3rd Item:  USD50

International:

  • 1st and 2nd: Free
  • 3rd Item:  USD50
  • · 4th item: USD50
  • · 5th item and more (each): USD100

USD75 fee for bags exceeding weight limitations and a USD75 fee for exceeding the size limitation.

Hawaiian Airlines

Within USA or between USA and Hawaii:

  • 1st checked bag: USD20 airport; USD15 online;
  • 2nd: USD30 airport; USD25 online;
  • 3rd to 6th: USD125 airport and online;
  • 7th or additional: USD200 airport and online.
  • Overweight (50 to 70 lbs): USD50;
  • Overweight (over 70 lbs): Not accepted.

JetBlue

  • 1st checked bag: Free;
  • 2nd: USD30:
  • 3rd+: USD75.
  • Overweight Baggage (51-70 pounds): USD50;
  • Overweight Baggage (71-99 pounds): USD100;
  • Overweight Baggage (Over 99 pounds): Not accepted;
  • Oversize (63-80 inch): USD75;
  • Oversize (over 80 inch): Not accepted.

Midwest Airlines

  • 1st checked bag: USD20;
  • 2nd: USD30;3
  • 3rd +: USD50.
  • Overweight Baggage (51-70 lbs): USD50;
  • Overweight Baggage (71-100 lbs): USD65;
  • Oversized Baggage (63-15”): USD80.

Northwest Airlines

For tickets purchased from 19-Sep-2009 for travel from 13-Oct-2009 (economy travel within the US or to/from Canada, Puerto Rico or the USVI:

  • 1st checked bag: USD15+;
  • 2nd: USD25+;
  • 3rd: USD125;
  • 4th to 10th: USD200. 

Airport kiosk or agent checkin fee: USD5.   

  • Overweight Baggage Fees (51-70 lbs): USD150;
  • Overweight Baggage Fees (Over 70 lbs): Not accepted
  • Oversize Domestic (63-80 inch): USD175;
  • Over 80 inch: Not accepted. 

Southwest Airlines

Southwest has reduced its baggage limit from three checked bags to two. 

Effective June 17, 2009, 3rd through 9th bag or item will incur a charge of $50 per piece, and any bag or item thereafter will be $110 per piece.

Spirit Airlines

  • 1st checked bag: USD19 online; USD25 airport;
  • 2nd: USD25
  • 3rd: USD100
  • Overweight (51- 70 lbs): USD50;
  • Overweight (71 – 99 lbs): USD100;
  • Oversized (158+ cm): USD100;
  • Oversized (203+ cm): USD150.

United Airlines

  • 1st checked bag; USD15 online; USD25 airport;
  • 2nd:  USD25 online; USD30 airport.
  • Overweight baggage - USD175 per bag;
  • Excess baggage - USD125/bag for fourth and fifth checked baggage, USD200 per bag for sixth and more checked bags.

US Airways

  • 1st checked bag; USD20 online; USD25 at airport
  • 2nd: USD30; USD35 online;
  • 3rd:  USD100 both.
  • 23-32 kg: USD50;
  • 32-45kg: USD100;
  • Larger than 157cm: USD100;
  • Over 203cm: Not accepted.

Virgin America

  • 1st checked bag: USD20;
  • 2nd through 10th: USD20.
  • Bag 1 (71 to 100 lbs): USD100;
  • Bags two through ten: 51 to 70 lbs - USD50; 71 to 100 lbs - USD100;
  • Oversized bags (63 to 80 inches): USD50.

WestJet

Two items of checked baggage are permitted

  • Extra piece: CAD75/item;
  • Overweight: More than 23 kgs
    but not over 45 kgs: CAD40 per item;
  • Oversize (158-200cm): CAD40/item.

Outlook: A global baggage stampede?

As the US airlines rack up well over USD2 billion in revenue from baggage fees this year, full service airlines around the world are looking on with interest, and many are likely to attempt to follow the US lead shortly.

Several LCCs outside the US are, unlike Southwest and JetBlue, already charging for checked baggage, with the fees accounting for significant proportions of their profits.

Widespread global adoption of baggage fees will depend on moves by more of the major players, although there could be resistance by European and Asia Pacific carriers if the fast-growing sixth freedom Middle East airlines continue to offer generous free baggage allowances.


Want more analysis like this? CAPA Membership gives you access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find out more and take a free trial.