Those Terrible Bag Fees Are Keeping The Airline Industry Afloat

Airport laguardia bags vacation baby coupleREUTERS/Shannon StapletonThe fees passengers pay for things like checked bags are keeping airlines in the black.

The global airline industry should see
record-breaking profits in 2014, and the key sources of revenue are the myriad fees that annoy passengers so much.

Called ancillary fees, they’re what you pay when you want to check a bag, have extra legroom, or change a reservation.

They may seem minor and annoying, but they are an absolute gold mine for airlines.

In 2010, airlines around the world made $US22.6 billion in ancillary revenue, worth 4.2% of industry revenue, according to an October 2013 report by IdeaWorks. In 2013, that number will reach $US42.6 billion, worth 6% of total revenue.

About half of that comes from commissions for hotel bookings and sale of frequent flier miles. The rest is from “a la carte fees,” like the $100 fee Spirit and Frontier charge some passengers for the right to have a carry-on bag.

That extra money is keeping the entire industry in the black.

According to a new forecast by the International Air Transport Association (IATA), fuel efficiency, consolidation, and robust passenger demand all play a role in pushing profits up, but ancillaries are especially crucial:

Ancillary revenues are a key driver of improved financial performance. Worldwide ancillary revenues have risen to an estimated $US13/passenger. Airlines are underpinning their profitability with innovative products and services.

On a per passenger basis, ancillary revenues are greater than the $US5.94/passenger profit that airlines are expected to earn in 2014. Without ancillaries, the industry would be making a loss from its core seat and cargo products.

This IATA chart tells the whole story. Over the past few years, revenue from fares has flatlined, while ancillaries are steadily bringing in more and more money:

According to IdeaWorks, KLM makes €65 million ($89.4 million) annually by charging extra for economy comfort seating. Southwest raked in $US161 million with EarlyBird boarding charges in 2012.

So travellers should get used to fees like these, and be prepared for more: They’re too effective to disappear anytime soon.

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