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US Airways: All Those Fees Will Bring Us Half a Billion in 2009

US Airways execs yesterday said that ancillary revenue will likely bring in about $500 million this year, enough to offset the effects of falling yields.  Consumers may grumble to each other about all of the additional costs, but for the most part they pony up the extra money when flying.  I think this is in part because consumers look at the fare as a separate cost from the fees, so they may feel good about getting a low fare even if they complain about the additional fees later.

US Airways said they’ll made a bit more than $100 million off of first bag fees last year, and if trends continue, that could be $300 million or more this year.  Consumers are checking 20% fewer bags than they used to, which is actually a very good thing since it makes it more likely that your luggage will make the connection in Charlotte with you.

The decision to stop charging for sodas will cost more than $20 million this year (quite impressive that they were selling 10 million cans of soda a year).

The most interesting fact was that they have seen no evidence of consumers defecting to Southwest on competing routes, even though Southwest does not charge any ancillary fees.  If I were a Southwest shareholder, I would be begging them to put the fees in.  While no fees makes for a nice marketing message, I’m not sure any airline is in the position to turn down $500 million in revenue with little-to-no effect on passenger loyalty.

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  1. Yeah, the bag fees seem to be quite lucrative to the airlines. They’re here to stay. Especially now that customers EXPECT there to be a domestic bag fee. Heck, I recently booked my parents on Alaska, because they were cheapest/most convenient. They were off on a cruise, and were going to check bags regardless of the fee. After making the booking, I went to their website to assign them seats. I was surprised that Alaska charges no bag fee. Nice for my parents, but 30 bucks in lost revenue that Alaska “should” have collected. My prediction: this “surprise” will happen all the time, and Alaska soon implements a bag fee.

    You could argue that Southwest has enough marketing might to get their message out that they are “fee free.” (Alaska doesn’t). You’d figure they have to pick up some passengers on the margins for this. But my guess is they lose more revenue from not having a bag fee than they get from customers booking BECAUSE they are fee-free. Rarely is Southwest the EXACT same price as their competiors offering equally convenient flights. If the savings isn’t more than $15, you would logically fly their competitor anyway. And my strong suspicion is that the most savvy travellers don’t check many domestic bags anyway. So you’re mostly just “giving away” your baggage service to people who would have paid it anyway.

  2. Hm, how do they measure “defection” to WN? Just compare how individual routes are performing?

    I have avoided booking in US Airways twice this year. First, the bag fees would have made it more expensive than WN. The second time it was to avoid a ride on a CRJ.

    But anyway, I think Southwest’s approach will work – many seem to find the no change fee on WN attractive.

  3. They likely measure it by seeing whether there’s a decrease in loads on routes where they compete with WN and whether WN is seeing an increase. I’m not convinced about Southwest holding off on fees – it really doesn’t make much sense given how much money is on the table. They would have to grab a significant amount of traffic (which, anecdotally, is not happening) to make it a revenue neutral decision. I wouldn’t be surprised to see them give in.

  4. I personally no longer book US Airways because of the bag fee unless it is my only choice on a route. And I know my parents stopped traveling with them as well. Unless they get EVERYONE to charge the fees it does hurt them. Look at the soda/water charge going away, it hurt them more than the revenue helped. Enough airlines have done the bag fees and they are big enough that the revenue is worth losing me as a customer for now.

    Also, Southwest is the only consistently profitable airline out there, US cannot say that, so maybe they should make themselves more Southwest like instead?

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