Skift Take

Airlines need to increase revenue. We get that. But can't they be smarter about how they assess fees?

Checked bag fees probably seem like the greatest business idea ever. A decade ago, U.S. airlines took a service that was free and turned it into a massive revenue generator worth billions of dollars annually, industry-wide.

But ask some airline executives about the fees, particularly when the tape recorder is off, and they can be less sanguine. The revenue is fantastic — so strong no airline that has fees will drop them — but the extra charges cause unintended consequences.

Most notably, they have led passengers to cram carry-ons to save cash, a problem because bins on older planes are not large enough to accommodate one bag per person. This often leads to a scramble at the gate, where agents take away bags and put them in the cargo hold, a dance that can produce angry passengers and short delays.

Airlines probably would be in better shape operationally if they made it easier and cheaper to check bags. Yet rather than retiring bag charges, many North American airlines are increasing them. In the last month, at least four North American airlines — United Airlines, JetBlue Airways, Air Canada, and WestJet — have raised fees for the first checked bag on the cheapest fares.

It’s looking like $30 for a first bag is the new normal. In many ways, it makes sense, as airlines need the revenue to satisfy shareholders. Fuel prices are up markedly compared to a year ago, and since they show no signs they’ll fall soon, airlines need more money to maintain profits. They can increases fares too, but it’s often difficult to push through large fare increases all at once.

We don’t begrudge airlines for raising fees. But they can be more creative than adding $5 to the price of every checked bag. Here are some ideas:

Carry-on Bag Fees

If any legacy carrier charges for carry-ons, passengers will revolt. But this is still a smart idea. Unlike the cargo hold, which is not a scarce resource, overhead bins have limited space. Airlines should reserve it for their best customers and travelers willing to pay more.

And while frugal customers might not believe it, many business and high-end leisure customers happily would pay for bin space. Few things anger a road warrior more than buying an expensive ticket but boarding late, after bins fill. Business travelers also don’t love boarding early, as they must today to ensure room for their bags. If an airline could guarantee them space, they could spend more time in the lounge or terminal and board last.

As a bonus for airlines, flights would board faster because fewer passengers would bring stuff for bins. That’s true today at the few U.S. discount airlines that charge for carry-ons, such as Frontier Airlines and Spirit Airlines.

Bag Fee Prices That Vary According To Demand

The once-size-fits-all approach major carriers use for bag fees makes no sense.

Almost every airline has one price for bags, per direction. But why should an airline charge the same fee to a customer flying from Los Angeles to Honolulu on Dec. 26 as to one flying between Philadelphia and Washington, D.C. on a Tuesday in January? If there’s lots of demand for checked luggage, such as during the holiday season, an airline should raise its prices. At other times, or on shorter flights, it could lower them.

Airlines could use checked bag fees to influence passenger behavior. The average weekday Chicago-to-New York flight is filled with business customers who want to stow bags. But most of those flights also have some leisure travelers, and they might prefer checking a bag, if it wasn’t so expensive. An airline could offer them a checked bag at a cheaper price — maybe $7. The airline would both add revenue and keep a bag out of the cabin, creating bin space for business travelers.

Seat Fees

One problem with checked baggage fees is airlines charge for a service many travelers don’t like to use. Some people consider checking bags a convenience, but the majority of travelers would prefer not to wait at baggage claim. Passengers often check bags only when they have to, such as when they’re traveling with their families and need lots of stuff.

The best fees are the ones airlines assess for perks passengers value.

This includes the best seats on the aircraft, both with extra legroom and without. In August, United Airlines said it would soon charge extra fees for the most desirable seats, mostly windows and aisles, in the middle of the aircraft. As United President Scott Kirby said in an interview: “Every other business that has something like that charges more for a better product.”

Passengers may not like paying extra for seats that were once free, but at least customers who buy them will get something they value.

Priority Boarding Fees

Let’s be clear about what priority boarding is: On most airlines, it’s a fee passengers pay to ensure they can place their carry-on bag in an overhead bin — an indirect way to charge for bin space.

It might be best if airlines just charge for bin access, but if they don’t – and there’s no indication they will — carriers should keep using priority boarding as a proxy. And because this is a service passengers value, airlines should probably keep raising prices for it, particularly on high-demand flights.

On Southwest, priority boarding means something else. The airline has open seating, and people who board first may choose the best seats. On Southwest, priority boarding is essentially a seat fee.

Southwest has been raising prices for priority boarding while varying the cost depending on the route and demand. This makes sense, as priority boarding is more valuable between Baltimore and Los Angeles than from Los Angeles to Las Vegas. Southwest should probably keep tinkering with this fee to create more revenue from it.


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Tags: airline innovation, airlines, ancillary revenue, bag fees, jetblue airways

Photo credit: Passengers at Southwest Airlines check bags in Los Angeles. Southwest is the only major U.S. carrier that allows customers to bring two checked bags for free. Southwest Airlines

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