Airlines are ringing in the new year with a cherished ritual: new and higher fees.
Virgin Atlantic will assess a £25 ($41) fee each way on long-haul flights for coach-class passengers who wish to select a seat more than 24 hours before departure. The dun begins on April 1 on flights from London to Las Vegas before expanding to the rest of the airline’s longer flights over the next 60 days. Analysts interpreted Virgin Atlantic’s seat-assignment fee as one impact of Delta Air Lines’ (DAL) 49 percent ownership stake in the airline. That type of new fee could also eventually lead to Europe’s major airlines deciding to assess fees on the first bag for trans-Atlantic flights, Wolfe Research analyst Hunter Keay wrote.
Stateside, meanwhile, United Airlines (UAL) has already doubled the fee for oversized bags, with a $200 price in effect since Dec. 13. The nation’s second-largest carrier also increased the fee for three or more checked bags, from $100 to $125 each. “The transportation of checked bags—particularly excess and oversized bags—requires a complex and costly infrastructure, and this increase better enables us to recover those costs,” United spokesman Charles Hobart said in an e-mail.
Spirit Airlines (SAVE), the low-fare pioneer of creative travel fees, raised its bag fees by $5 to $6 for people who pay during online check-in and $10 to $15 if purchased through Spirit’s reservations center. Travelers in the airline’s “$9 Fare Club” will also see bag fees rise by $1. (Spirit will still charge $100 at the boarding gate for all carry-on bags and each checked bag.)
Airlines have found revenue from bags and other fees to be easy money, akin to losing weight without watching one’s calorie consumption. For the most part, nearly every dollar in such ancillary revenues trickles directly to the net income line on a carrier’s balance sheet—a rare feat in the vexatious world of airline finance. In the third quarter, U.S. airlines collected $879 million in baggage fees and $735 million in ticket-change fees, the latter category boosted by sizable increases that the major carriers imposed in April.
The industry was led by Delta, which has collected $635.4 million in bag fees so far this year, followed by United and US Airways (AAL), which merged with American this month. In change fees, Delta was also No. 1 through Sept. 30, at $636.9 million followed by United and American. The U.S. Department of Transportation will release the full-year totals in May. (A nice chart of the fee totals, by carrier, appears here.)
“We find it incomprehensible that some airlines believe a lack of irritating fees, imposed on low value customers, creates shareholder wealth,” Keay wrote, boosting his target for Spirit’s share price to $58. “We advise avoiding those stocks, all else equal.”