December 25, 2008 in Business

No holiday for bag fees

Fuel costs down, but airlines count on new revenue
By HARRY R. WEBER Associated Press
 
Associated Press photo

Arman Garakani gets money out to pay baggage fees to a skycap at the American Airlines bag drop at San Francisco International Airport in San Francisco on Tuesday.
(Full-size photo)

ATLANTA – When airlines started charging some passengers $15 or more earlier this year to check their bags, they blamed soaring fuel costs. Since then, oil has plummeted. Yet the industry hasn’t stowed away the bag fees.

Many of us are still paying to fly with a suitcase that doesn’t squeeze into the overhead bin or under the seat.

The reason is simple: Airlines are still losing money, though now largely because of the recession instead of oil.

And don’t expect the fee to disappear even when the economy rebounds. Airlines are finding the fees to be a reliable source of revenue and say that such charges allow passengers to choose only the services they want.

Passengers, meanwhile, are paying up and grumbling. Many are being socked, on average, $15 for the first bag and $25 for the second.

“I think it’s unfair and I think it’s highway robbery,” said Benjamin Johnson, a 38-year-old government employee, as he headed from Atlanta to Orlando, Fla.

For the airlines, the bag fees, on top of charges for other once-free amenities, add up to much-needed revenue. The industry is expected to lose $4 billion for 2008, excluding one-time items, despite the plunge in the price of a barrel of oil from $147 in July to about $40 this week, said Calyon Securities airline analyst Ray Neidl.

Airlines now say they are being hurt by the recession, which has caused demand for seats to drop. The International Air Transport Association said global passenger traffic declined 1.3 percent in October from a year earlier.

Airlines also have been weighed down by bad bets they made on the price of fuel when it was skyrocketing. After locking in at prices that looked reasonable earlier this year, some are paying substantially more than market price for a portion of their fuel.

Airlines do not break out the revenue brought in by baggage fees.

“While fuel prices have fallen, the economy has created a new uncertainty for us, and the industry’s going to lose billions of dollars this year,” said Doug Parker, chief of US Airways Group Inc. “Indeed, it was fuel-driven economic concerns, but now we have different economic concerns. And having said that, I, for one at least, believe it’s the right model for the business, irrespective of what environment we’re in.”

Airlines say the fees are a new way of doing business in which services that were once bundled into the price of a ticket are offered a la carte.

An October poll of frequent travelers found that half prefer a lower ticket price in exchange for a la carte pricing for food, beverages, headphones and blankets. But the same survey, conducted for IBM, found that 82 percent described the baggage fees as a “rip-off.” By comparison, only 45 percent viewed food and nonalcoholic drinks that way.

After getting off a recent flight to Atlanta, insurance sales representative Cecilia Kolstad said it was crazy she had to fork over extra money to check a bag.

But “if it’s between that and seeing an airline go out of business I guess I’ll pay the $15 because I like to fly,” said Kolstad, 55, of Pembroke Pines, Fla.

© Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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