Other Revenue Streams Under Consideration

As airlines have tried with little success to raise fares amid growing concerns that oil prices may again start to climb, they appear ready to again increase the fees charged for checked luggage, industry observers say.

"Baggage fees are here to stay and they are only going to grow in importance for carriers,” said Jay Sorensen, who operates IdeaWorks, a Shorewood airline consulting firm.

The Milwaukee Business Journal reports that Sorensen calls the possible baggage fee increases a "tweak", with airlines possibly considering a sliding scale based on the distance of the flight. The public has groused about baggage fees, but Sorensen said he has not seen a lot of customer backlash. "Consumers begrudgingly accepted their fate," he said. 

In a news release, IdeaWorks says he group of big-5 airlines (American, Continental, Delta, United, and US Airways) all boosted baggage fees during January 2010. IdeaWorks estimates these carriers will realize annual baggage fee revenue of $1.76 billion. The “new money” portion of this amount for the group of big-5 carriers exceeds $117 million. Southwest Airlines, which has positioned itself above the fray by promising “bags fly free,” is a large and vocal holdout. The carrier’s current advertising campaign virtually assures it will remain on the sidelines for some time. But if Southwest achieved Delta’s per passenger result of $7.32 from baggage fees, its 100 million annual passengers would contribute $732 million to the bottom line. The US airline industry is unlikely to stop this trend and more tweaking of the fee structure can be expected during 2010 and beyond.

Meanwhile, carriers continue to look for ways to generate additional revenue through ancillary fees, Sorensen said. Passengers may soon find themselves being charged for things like early boarding, priority check-in, and seat assignments. “The revenue stream is just too attractive and the airlines are terrified about getting caught up in a high fuel price environment again,” Sorensen said.

FMI: www.ideaworkscompany.com