*New York (CNN) — A United Airlines round-trip ticket from Denver to Dallas in late March is advertised for $91. But checking one bag at the airport both ways will cost an extra $80 — nearly as much as the flight.
Checked bag fees are hitting record highs as airlines up the ante. Bag fees are lucrative revenue for airlines and a way to save on taxes, airline experts say.
Last week, American Airlines said it was raising luggage fees by $5. American will charge $40 for customers who don’t first prepay online and $35 if they do. United, JetBlue and Alaska Airlines have also announced fee increases this year. (Southwest is the only airline that does not charge for checking bags. Delta charges $30 for a first checked bag, but has not raised its prices since 2018.)
Luggage fees feel like they’ve been around forever, but they are a relatively new phenomenon. In 2008, American became the first major US airline to charge customers for checking a bag, instituting a $15 fee. Airlines also charge extra for bags that weigh over a certain threshold, often 50 pounds.
way to move part of the price out of the base airfare and into fees for tax savings purposes. said Gary Leff, an expert on the airline industry and founder of the travel website View from the Wing.
Domestic airfares are subject to a 7.5% federal excise tax, but that tax doesn’t apply to airline fees. So an airline can save $75 million in tax fees off its $1 billion revenue in domestic checked-bag fees.
Bag fees are also a huge source of revenue for airlines. In 2022, the latest year for which data is available, airlines collected $6.8 billion in baggage fees, according to the Department of Transportation. That figure was up 17% from pre-pandemic levels in 2019 and double from a decade ago.
Bag fees make up an increasing portion of airlines’ operating revenues. In 2020, baggage fees made up 4% of major airlines’ revenue, according to one study, and 21% of revenue for ultra low-cost carriers like Spirit and Frontier.
Bag fees also provide airlines with an opportunity to introduce perks for their profitable co-branded credit cards, such as the Delta SkyMiles American Express Card, which allows customers to check their first bag for free.
Airlines’ co-branded credit cards are a major revenue source for airlines, accounting for $25 billion in sales last year.
“Airlines are raising bag fees in part because of higher labor costs, and in part because they want to — and they can,” said Henry Harteveldt, the president of travel industry firm Atmosphere Research Group. “Passengers don’t like paying to check bags, but they generally don’t change airlines over the price of the checked bag fee.”
Rise of discount carriers
Bag fees first started because of challenges in the airline industry and the rise of discount carriers.
Airlines in 2008 attributed the introduction of baggage fees to then-record fuel prices. The price of crude oil jumped almost five-fold in just five years, from $27 a barrel in 2003 to $127 a barrel in 2008.
“It was tough revenue period and costs were increasing,” said Blaise Waguespack, a professor of airline marketing at Embry‑Riddle Aeronautical University in Daytona Beach, Florida. Fewer people were flying after the September 11 attacks, and the Great Recession also took a toll.
“It was one of those things that didn’t come to mind until after 9/11 and a tough economic recovery period,” he said.
After the introduction of new baggage fees, airlines reported a seven-fold increase in baggage fee revenues, from $464 million in 2007 to $3.4 billion in 2010.
The introduction of bag fees was also a response to the rise of low-price carriers like Spirit in the United States and Ryanair in Europe.
These so-called “ultra-low” carriers started offering low base fares and then charged extra for everything else, including carry-on bags in the case of Spirit.
Major airlines responded by introducing their own versions of these low fares, called “basic economy,” and unbundling their services with separate charges, such as checked luggage, seats with more legroom, and other amenities.
During the COVID-19 pandemic, most airlines pulled back on change fees because they believed people wouldn’t book flights if they still faced non-changeable, non-refundable fares at a time when they were uncertain about flying at all. But airlines kept the bag fees in place and even raised them in an effort to make up for the lost revenue from change fees.
More recently, airlines said they hiked bag fees to offset higher costs. New contracts for pilots and other workers have included double-digit pay increases, and jet fuel prices are up more than 10% since the start of the year.
Ban the fees?
Luggage, seat reservation and other fees make it challenging for customers to compare flights and identify the cheapest fare.
This has allowed airlines to add revenue while dropping the price of the base airfare.
After the introduction of baggage fees, base airfares decreased by about $7, but the full price of travel (the base airfare plus the baggage fee) increased overall, a 2015 study found.
Bag fees have been a political punching bag. In 2011, former Sen. Mary Landrieu proposed banning airlines from charging for the first checked bag, but the bill failed.
But eliminating bag fees could backfire, according to experts. If bag fees ended, major airlines would likely raise prices on airfare and other services.
“It undermines the business model of ultra low-cost carriers like Spirit and Frontier that help keep airfare prices at major carriers in check,” Leff said.
The Transportation Department last year proposed a rule requiring airlines to disclose fees for baggage, ticket changes and family seating the first time an airfare is displayed, allowing customers to more easily compare prices.
“This new proposed rule would require airlines to be transparent with customers about the fees they charge, which will help travelers make informed decisions and save money,” Transportation Secretary Pete Buttigieg said.
But Leff said this plan is a minor step. Instead, ancillary fees should be taxed at the same rate as airfare.
“We should end differential tax treatment of airfare versus fees so that government policy at least does not encourage the proliferation of fees,” Leff said.
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