It’s official. The airlines are making money, lots of money. For everyone who is outraged at feeling nickle-and-dimed there is the cold comfort that that change adds up to big numbers for the airline world. America’s airlines during the 2nd quarter of this year made $3.09 billion in profits. Not surprisingly, $2.1 billion came from airline fees gone wild.
During this last quarter, money has been flowing to airlines from all angles. Airplanes are flying fuller than ever and airfares are on the rise. The airlines’ drive to squeeze capacity out of the system is working. But it is the collection of ancillary fees that is working the best. More than two-thirds of the profits raked in by the airlines came from extra (and in many cases, hidden) fees.
Our friends at the Forth Worth Star-Telegram took the Bureau of Transportation Statistics (BTS) figures released this week and noted that, “Airlines collected $893 million in bag fees alone and $594 million more from reservation change fees.”
These charts tell the ugly story from the embattled passenger faced with ever-rising fees or the beautiful tale from the airline accountant’s point of view as balance sheets return to the black. First come the baggage fees and then comes a chart showing how much ancillary fees have increased airline by airline. (Chart data from BTS; charts created by Forth Worth Star-Telegram)
Here is the increase in ancillary fee collections by airline from 2nd Quarter 2009 to 2nd Quarter 2010.
I have received a lot of emails and comments noting that the airlines are losing money and they need fees to survive. I wrote about the first quarter earnings and said that it is time to stop treating airlines like impoverished wards of the state.
This airline prosperity is spreading around the world. An industry that only months ago was woefully predicting billions of dollars in annual losses, today is forced to acknowledge billions in annual profits. Sometimes it is hard to believe their spokespeople when the predicted profits make almost a $5 billion swing within six months. Yes, I said billions, not small change.
The world’s airlines are likely to post sharply higher profits this year at USD$8.9 billion, the global industry body said on Tuesday, more than three times previously forecast as the international economy rebounds.
Only three months ago, the International Air Transport Association (IATA) had estimated its member airlines would collectively post 2010 profits of USD$2.5 billion. In March, it had forecast losses of USD$2.8 billion.
At smartertravel.com journalists compiled their statistics in yet another illustrative way. They show the inexorable march of airline baggage revenues.
More importantly, most of these numbers are on the rise. Revenue from bag fees has jumped 33 percent over the same period last year.
In fact, just for illustrative purposes, here are the quarterly bag fee revenue numbers for the past five quarters:
* Q2 2009: $669.6 million
* Q3 2009: $739.8 million
* Q4 2009: $741.5 million
* Q1 2010: $768.5 million
* Q2 2010: $892.8 million
Other fees beyond baggage fees helped the airlines reach the best profitability levels of the past decade. Whereas baggage fees brought in a total of $893 million, reservation change fees came in second with $594 million collections and other fees brought in $618 million.
Interestingly, the Air Transport Association, the lobbying arm for the airlines in Washington, released their profit announcement with a glaring oversight — no any mention that two-thirds of the airline profits came from ancillary fees.
With two-thirds of airline profits now flowing from ancillary fees, it is becoming inexcusable for the airlines to continue hiding these fees on their own websites. This kind of hidden price game and restriction of commerce is illegal in most of our retail economy. It is time that DOT mandate the airlines reveal their fees in a similar way that they post airfares everywhere they choose to sell airline tickets. It is a violation of a consumer’s basic right: to know how much they will have to pay for their trip.
The airlines have every right to make a fair profit and set fares and fees that allow them to do so. But they have no right to try to hide those prices from their customers.
U.S. airlines posted operating profit of $3.09 billion in the second quarter, and much of the credit goes to their bag fees and other extra charges.
The U.S. Bureau of Transportation Statistics said the 21 passenger airlines in the group brought in $2.1 billion in ancillary fees in the three months that ended June 30: $893 million for baggage, $594 million for reservation changes and $618 million from other types of fees.
The revenue from the extra fees lifted the airlines to an operating margin of 9 percent, the highest margin in the eight years that BTS officials have been tracking that data. Operating margin is operating revenue divided by operating profit.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
