About 8 years ago airlines started charging for checked bags that they used to transport as part of a ticket.
In addition to whatever incremental revenue they may earn from doing so, they discovered a huge incentive in tax arbitrage: the more money they move out of “the ticket” (which is subject to a 7.5% excise tax) and into “ancillary revenue” (which is not subject to this tax) the better off they are financially. Roughly speaking each of the largest US airlines is pocketing $50 million a year in tax savings by charging you for checked bags.
Delta and Alaska Airlines actually offer you promises in exchange for checking bags with them. Delta will give you 2500 miles if you’re a SkyMiles member and your bags aren’t delivered within 20 minutes off a domestic flight. Alaska, which pioneered the offer, will give you 2500 miles or $25 towards a future flight.
The Senate’s FAA reauthorization bill will require that airlines to refund bag fees if they take your money for a checked bag and then don’t provide the service — either not delivering your bags on time or at all.
This component of the legislation, though, may not wind up in the House version of the bill. Current FAA authorization runs through July 15, and if the House and Senate cannot both path the same bill before then we may see another three month extension.
I prefer a world in which airlines do compete on these policies.
- This takes away some of the advantage of a Southwest which doesn’t charge for checked bag fees at all.
- United’s and American’s approach worse than Alaska’s and Delta’s.
- If getting hosed by airlines that charge checked bag fees and then don’t deliver the bags in a timely manner matters to you, then don’t buy American or United tickets.
However only being able to keep money for services you actually perform is a very reasonable principle. I’d still far prefer the federal government stop incentivizing airlines from charging checked bag fees in the first place!