Yesterday Delta raised first and second checked bag fees by $5, following a move made by United and earlier by JetBlue. Delta made the change immediately, but did not tell anyone. They still haven’t sent out a release or news item, and have not e-mailed customers.
American Airlines just announced what should surprise literally no one, that they’re raising first and second checked bag fees by $5 as well, from $25 to $30 and $35 to $40 respectively. When United followed JetBlue, it was clear American would have to — they’re under real pressure from Wall Street over revenues and would have a difficult time explaining why they’d be “leaving money on the table.”
Once Delta made the move, American was never going to stand alone. And besides, Delta did it. Delta is smart, everything they do must be right.
Checked bag fees aren’t a magic pill for ails airline revenue, however. Indeed, the total cost of air travel (inclusive of fees) has fallen since first checked bag fees were first introduced (by American!) a decade ago.
Three things are going to happen to American now that checked bag fees are going up effective tomorrow:
- American’s ‘checked bag fee revenue’ will go up
- American’s total revenue will not materially change
- American’s tax bill will go down
If airlines could make more money by just charging more, they would… just charge more (raise fares). For the most part airline pricing strategies are about getting customers most willing to pay more to spend more.
- If you care about your seat assignment you’ll pay for a better seat assignment, or sit in back by the lavatory.
- If you care about making changes you’ll pay change fees or buy refundable tickets.
- If you’re a business traveler you’ll avoid cheaper basic economy tickets.
Business travelers are less likely to pay checked bag fees than leisure travelers. They may just carry on a bag for a short trip. They may have elite status as frequent flyers, exempt from checked bag fees. That isn’t to say business travelers don’t pay checked bag fees, they do, but as a proportion of customers they pay them less often.
Blog reader Hemal G checked deoderant onto an American Airlines Charlotte – Newark flight because he wanted to use his free checked baggage allowance.
So this is a fee increase on the price sensitive leisure segment, the least likely to pay more. And it comes at a time when online booking tools are helping customers to better understand their total trip costs — which is why American Airlines was forced to roll back the ban on full sized carry on bags for basic economy customers. Delta didn’t have such a rule, so a customer looking to bring a bag on board saw Delta offering a lower fare for what that customer needed.
American had no choice but to raise checked bag fees because they weren’t going to be able to convince Wall Street they’re doing what’s necessary to increase revenue if they didn’t. With greater revenue challenges already they lack the credibility to make the counterintuitive (but true) case.
Sitting in the Back of Coach on American Airlines
When United launched basic economy they reported losing about $100 million, attributing it to American offering a better deal to customers since American Airlines hadn’t yet launched draconian basic economy fares yet. United made clear that offering a better total cost package wins meaningful customers and that the amounts are material.
American isn’t in a position to take this upside. Southwest would be in a much better position to benefit if they would begin to pay for third party distribution of their fares, so customers could compare total trip cost side-by-side — something that has to come eventually once the online booking sites are doing a good enough job making Southwest appear to be the better deal with no change fees or checked baggage fees.
The good news for American of course is that even if this change doesn’t move the needle on revenue, if total trip cost remains the same and fares fall, they’re moving money out of fares and into fees — fees which aren’t subject to the federal 7.5% excise tax on domestic airfare. An airline with $1 billion in ancillary fees unbundled from domestic fares saves $75 million in taxes.
The sad thing of course is that customers get nothing in return for the higher-priced checked bag fees. American announced the change — but what they failed to announce is matching Delta and Alaska with a 20 minute checked baggage delivery guarantee.