LOCAL ECONOMIC SNAPSHOT | AIRLINE FEES

Airlines pocket billions from charges

By TERRY MAXON
Staff Writer tmaxon@dallasnews.com

U.S. airlines are pocketing well over $1 billion a quarter in fees for checking bags and changing flights. Most airlines wouldnt be nearly so profitable without the ancillary fees theyve imposed in recent years, and a few would have lost money in 2011 without the add-ons. But after peaking in 2010, the totals for bag and change fees declined slightly in 2011. Have they topped out?

Bag fees vs. change fees

After airlines begin charging for checked bags in 2008, those fees passed charges for reservation changes.

BAG FEES
TOTAL
(In billions) 6 5 4 3 2 1 0 07 08 09 10 11

CHANGE FEES
PER PASSENGER
8 7 6 5 4 3 2 1 0

COMBINED FEES
PER PASSENGER
8 7 6 5 4 3 2 1 0

TOTAL
(In billions) 6 5

TOTAL
(In billions) 6 5 4

$5.7 billion

PER PASSENGER
8 7 6 5 4 3 2 1 0

$7.16

$3.4 billion

$4.19

4 3 2 1

$2.4 billion

$2.97

3 2 1

07 08 09 10 11

07 08 09 10 11

07 08 09 10 11

07 08 09 10 11

07 08 09 10 11

Fees per passenger

The average passenger paid less in change fees and bag fees last year than in 2010 Bag fees
10 9 8 7 6 5 4 3 2 1 0 07 08 09 10 11

Operating profit vs. fees

Fees for bags and reservation changes now are essential for industry profitability. AIRLINE OPERATING PROFIT (in millions) FEES (in millions) $471 Alaska Airlines $168 AirTran Allegiant Air American Airlines Continental Delta Air Lines Frontier Airlines Hawaiian Airlines JetBlue Airways Southwest Spirit Air Lines United US Airways -$111 $25 $324 $652 $144 $894 $434 -$1,170 $950 $2,245 $93 $74 $189 $32 $160 $601 $782 -$16 $64 $215 $59 $1,089 $603 $1,630

Change fees Fourth quarter 2011 total fees: $6.93

Who gets the most?

Delta Air Lines pulls in the most fees, even though it trailed the new United Continental in size. AIRLINE Delta Air Lines American Airlines US Airways Continental Airlines United Airlines AirTran Airways JetBlue Airways Alaska Airlines Spirit Air Lines Frontier Airlines Hawaiian Airlines Allegiant Air Southwest Airlines $215 $189 $168 $160 $93 $74 $59 $32 $603 $601 $1,089 $782 BAG AND CHANGE FEES (in millions) $1,630

A share of revenue
Spirit Airlines draws the largest portion of its operating revenue from bag and change fees. AIRLINE Spirit Airlines Allegiant Air AirTran Airways US Airways Frontier Airlines Delta Air Lines American Airlines Hawaiian Airlines JetBlue Airways Alaska Airlines Continental Airlines United Airlines Southwest Airlines 0.2% 5.9% 5.6% 4.6% 4.5% 4.5% 4.2% 3.9% 3.7% 2.8% 8% 7.3% PERCENTAGE OF OPERATING REVENUE 14.9%

SOURCE: U.S. Bureau of Transportation Statistics

The bottom line

No one ever says, I really enjoyed the experience of opening my wallet or purse to hand over my credit card! Customer satisfaction with cost and fees, however, reflects a sense of value we receive for the products and services we buy. Airline passengers are particularly dissatisfied with what they pay in airfare and additional fees. We knew baggage fees would have a ceiling, and today it has been reached. The challenge now lies with airlines whose ancillary strategy is based solely on unbundling current services. Their options have become exhausted. Going forward, airlines need to become true retail experts to bring about new revenue opportunities that actually enhance the passenger experience. Ancillary fees are becoming the difference-maker for a number of U.S. airlines. We also seen the growth of carriers like Spirit Airlines, which offers ultra low fares but brought in $160 million in bag and change fees last year. But theres also Southwest Airlines, which collected only $32 million in bag fees and nothing from change fees. Terry Maxon, staff writer, The Dallas Morning News

Stuart Greif, vice president and general manager, global travel and hospitality practice J.D. Power and Associates

Patrick ONeill, senior vice president and general manager, Americas GuestLogix Inc.