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Delta is the second-most profitable U.S. airline, but it is the king of bag fees

Dec 17, 2012 1:49 pm

Skift Take

Fees for bags, reservation changes, and seat upgrades have finally made U.S. airlines profitable, but the traveling pubic still isn’t sold on the a la carte fee system.

— Dennis Schaal

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James Emery  / Flickr.com

Passengers waiting to check baggage at Delta counters in Atlanta. James Emery / Flickr.com


It’s no coincidence that Delta Air Lines had the second-highest operating-profit margin among U.S. airlines in the third quarter and also took in the most checked bag-fee revenue: $233.1 million.

Delta’s third quarter profit margin of 14.6% (or $1.46 billion in Q3 operating profit) was only eclipsed by the much-smaller Alaska Airlines at 18.7% ($237 million), according to the Bureau of Transportation Statistics.

Interestingly, Alaska’s third quarter revenue from bag fees was more than $44 million, well up in the BTS ranking in sixth place behind Delta, United, American, US Airways, and Southwest out of 16 airlines covered.

Delta generally charges $25, $35 and $125 for the first, second and third checked bags each way, while Alaska charges $20 each.

Here’s the BTS’ bag-fee tallies through the first three quarters of 2012:

Baggage Fees by Airline 2012 (numbers in 000)

Rank Airline 1Q 2Q 3Q 2012 so far
1 Delta 198,352 231,351 233,123 662,826
2 United 156,761 194,587 187,282 538,630
3 American 139,239 149,194 138,260 426,693
4 US Airways 124,333 136,230 129,364 389,927
5 Southwest* 7,716 50,523 46,066 104,305
6 Alaska 33,165 38,452 44,086 115,703
7 Spirit 38,023 44,036 43,483 125,542
8 Allegiant 16,069 20,751 25,758 62,578
9 JetBlue 17,203 17,132 18,938 53,273
10 Frontier 17,201 17,908 18,770 53,879
11 Hawaiian 16,114 16,513 18,137 50,764
12 Virgin America 12,913 14,809 16,214 43,936
13 Sun Country 4,183 3,422 3,626 11,231
14 Mesa 310 941 1,062 2,313
15 AirTran* 4,183 0 0 4,183
16 USA 3000 2 0 0 2
All 785,767 935,849 924,169 2,645,785
* The merged Southwest and AirTran began reporting jointly in 2Q 2012. Previous numbers, including 1Q 2012, were reported separately.

 

The BTS notes that U.S. passenger airlines garnered $924 million in bag fees from July to September 2012, and that comes on top of the $652 million they collected from a poor second cousin, change fees.

And, these numbers are only part of the airline ancillary revenue picture because U.S. airlines are not required to report other ancillary revenue, including fees for seat upgrades, food and beverage, and entertainment, including Wi-Fi.

The new normal?

Prior to the airlines’ ancillary revenue blitz, there was a lot of red ink going around as escalating fuel prices and competition from other carriers exacted much hurt.

But in today’s U.S. airline industry, the top 10 airlines all posted an operating profit in the third quarter, and bag fees, other ancillary revenue, and industry consolidation had much to do with the turnaround.

The key importance of ancillary revenue initiatives to airlines’ health can be seen in Southwest’s announcement last week that it would be increasing its ancillary fees as it seeks to take in an additional $100 million or more in ancillary revenue in 2013.

The first two checked bags fly free on Southwest, but the combined Southwest and AirTran (with bag fees of $20, $25 and $50 for the first three checked bags, respectively) attracted $46 million in bag-fee revenue — the fifth highest — among U.S. airlines during the third quarter.

In addition to AirTran’s bag fees, Southwest collects fees for third-checked bags ($50) and and excess bags, and its numbers are pumped up by the fact that Southwest is among the largest U.S. airlines in terms of passenger traffic.

Here are the BTS statistics on the top 10 U.S. arilines’ operating profit margins through the first three quarters of 2012.┬áThe numbers paint a relatively healthy profit picture, driven by bag fees and other ancillary charges.

Large Airline System* Quarterly Operating Profit/Loss Margin (In Percent)

3Q 2012 Passenger Rank Airline 3Q 2011 (%) 4Q 2011 (%) 1Q 2012 (%) 2Q 2012 (%) 3Q 2012 (%) 3rd Quarter Operating Profit/Loss $(Millions)
1 Southwest** 5.8 4.0 0.9 10.0 1.2 50
2 Delta 8.8 9.7 4.6 3.8 14.6 1,461
3 United*** 9.9 -2.7 -3.3 5.9 2.1 203
4 American 0.2 -13.4 -1.7 1.9 0.4 27
5 US Airways 5.1 3.3 1.7 10.3 7.3 261
6 ExpressJet**** -2.8 -5.5 -0.7 0.9 1.1 4
7 JetBlue 9.1 7.3 6.8 9.4 8.6 113
8 SkyWest 6.6 3.8 4.5 8.2 10.3 49
9 Alaska 18.4 6.9 4.3 15.8 18.7 237
N/A AirTran** 2.4 1.5 -1.0 N/A N/A N/A
10-Carrier Total 6.8 1.4 0.7 6.0 6.4 2,407
* System = domestic + international
** Southwest Airlines and AirTran Airways began reporting jointly in 2Q 2012.
*** United Airlines and Continental Airlines began reporting jointly in 1Q 2012. Previous quarter numbers are for United only. For Continental financials through 4Q 2011, see BTS Airline Financials Data press releases http://www.bts.gov/press_releases/airline_financial_data.html
**** ExpressJet Airlines and Atlantic Southeast Airlines began reporting jointly in 1Q 2012. Previous quarter numbers are for ExpressJet only.

 

 

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