As you head off on your Thanksgiving travels this week and prepare to pay airline baggage fees, you may wonder what it actually costs the airline to fly your 40-pound suitcase.
Based on our own estimate derived from consultations with industry executives and other sources, the cost to carry checked luggage comes to roughly $15 a bag. That, it turns out, is what most big airlines – including AMR Corp.’s American Airlines and Continental Airlines Inc. – are charging fliers to check their first bag. But those who check multiple bags, ski equipment or oversized or overweight luggage are paying much, much more – allowing airlines to make a tidy profit. In those instances, baggage fees may yield more profit for the airline than what the carrier is making on the basic passenger ticket.
Airlines don’t break out the expense of transporting passenger baggage, and they are tight-lipped about baggage because they know many customers are angry about the new fees. Airlines aren’t always so opaque when it comes to their cost data – American once famously counted the savings from removing olives from salads. But, several airlines contacted declined to discuss breakdowns of baggage costs; some were downright defensive.
“I hope you would agree we are allowed to make a profit,” said one airline spokesman, adding his carrier doesn’t know what it costs to provide baggage service.
We all know how frustrating airline baggage service can be. At least one passenger per planeload arrives without his or her checked suitcase, and others are left to discover damage to their luggage, or even theft. But airlines do spend a lot of money moving luggage.
Until recently, soaring oil prices were adding to that cost. That’s why earlier this year, UAL Corp.’s United Airlines imposed a $25 fee to check a second bag on domestic flights, soon matched by most big U.S. carriers. In May, American became the first major carrier to impose a $15 fee on the first piece of checked luggage, also widely matched. Airlines also increased fees for large bags, heavy bags and people with more than two bags.
Today, most major airlines charge $15 each way to check one bag; $25 each way for a second bag; and as much as $125 each way for a third bag or any bag that weighs more than 50 pounds. Notable exceptions: Southwest Airlines Co. allows two free bags; JetBlue Airways Corp. and Alaska Air Group Inc. transport one bag free. A La Carte Pricing
Even though oil prices have receded, airlines say baggage fees remain because they are boosting the industry’s usually dismal finances and moving customers to “a la carte” pricing – passengers pay for the services they use, whether it’s a sandwich bought on board, a checked bag or assistance from a telephone reservationist.
United, for example, has said it expects to collect $275 million annually from the first- and second-bag fees. AirTran Airways, which will begin charging $15 to check one bag next week, said it expects to take in $50 million to $100 million annually in fees.
Moving passenger baggage is an intensely manual operation, requiring lots of workers. On average, each bag gets touched by about 10 workers during its journey, airlines say.
Once bags are tagged, they are sorted and placed on carts, then driven planeside, where a crew loads them into the belly of a jet. The unloading process is more labor-intensive: Bags are sorted into luggage to be delivered to the carousel for passengers to collect and luggage that needs to be routed to connecting flights and has to be sorted and driven to lots of different planes.
“The art, or science, of handling bags is really more complex than people realize,” said Kerry Hester, vice president of customer service planning at US Airways Group Inc.
Not all of an airport ground worker’s time is spent on baggage, of course. Baggage handlers move cargo, direct airplanes into and out of gates and have other duties preparing flights. At the same time, there are expenses for workers beyond salaries and benefits: Baggage handlers have to be trained in hazardous materials, for example, and airlines run into millions of dollars in annual costs for on-the-job injuries related to baggage.
Add to that some portion of the duties of check-in personnel who tag the bags, service clerks who help customers with lost luggage, workers who maintain equipment and baggage service managers.
US Airways Chief Executive Douglas Parker said earlier this year that his airline spends $250 million on labor just to handle baggage. That was about 11 percent of the airline’s payroll last year, and works out to something close to $9 per bag.
In addition to labor expenses, airlines say they spend millions of dollars annually on baggage equipment, facilities and sorting systems, paying rent to airports for bag rooms, carousels and offices and buying carts, tractors and conveyors. They also pay to deliver lost bags to customers and pay claims for items never found. Airline executives suggest that boils down to about one-third to half as much as the labor cost; figure another $4 roughly per bag.
Then there’s the fuel cost to fly the bag. One rough formula sometimes used in the airline business to approximate fuel costs is that it requires 3 percent to 5 percent of the weight of an object in fuel to fly it one hour. That means at current fuel prices, it would cost about $1 to $2 to fly a 40-pound bag on an average three-hour trip.
Add it all up, and the best guess is around $15 per bag in airline costs. Whether coincidence or careful accounting, airlines settled on $15 as the fee to charge for the first checked bag.
American said setting the price at $15 first-bag price was “not precisely cost-based” but more pegged to what the airline thought customers would pay. “The second checked bag fee was already in the marketplace at $25, and we logically felt that the fee needed to be less than that,” spokesman Tim Smith said. Checking Fewer Bags
Airlines say the fees have already caused passengers to change behavior. Fewer customers are checking multiple bags; fewer are checking any bags, in fact. The reduction has improved baggage-handling reliability, with lower rates of lost luggage, and created more room for cargo on planes. Cargo rates are considerably more lucrative for airlines than passenger baggage. At many airlines, for example, the minimum charge for same-day cargo service of a small parcel is about $80.
But the baggage-fee frenzy still makes many airline passengers wonder: Isn’t luggage part of the service you get when you buy a ticket?
Initially, senior United executives said they believed one bag would always be included free, then imposed a fee on customers’ first bags a few months later. This summer, Delta Air Lines Inc. Chief Executive Richard Anderson said he thought it was fair for the airline to haul one suitcase free for passengers.
But earlier this month, Delta said it, too, would begin charging $15 one-way to haul the first bag, effective Dec. 5. (At most airlines, elite-level frequent fliers, first-class ticket-holders and international passengers are exempt from many of the fees.)
What changed? Customers were paying the fee at other airlines without a backlash. Delta said it wasn’t getting any benefit from not charging the fee. So why not charge it?