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American Airlines Charges $15 for Your FIRST Bag... And More

by Jack Penning

kgw.com

Posted on May 21, 2008 at 3:14 PM

Updated Wednesday, Nov 4 at 2:45 PM

American Airlines announced today, in an effort to make additional money to offset the ever-rising cost of fuel, it will charge you $15 for your FIRST checked bag, and another $25 for your second, each way. It could add up to $80 in roundtrip fees just for the basic service of getting your bag to your destination.

All airlines are struggling to cover the cost of fuel. If oil doesn't come back down to the $100/barrel mark (It's hovering around $128/barrel today), you're going to see a lot of changes and extra charges. But for the airline that was supposed to be "full service," this is a radical change. Charging you more for something even Southwest does for free.

My thought has always been, go ahead and charge me extra if the service gives me "value added." For example, Frontier Airlines charges $6 each segment for a personal DirecTV screen. This gives me value added - something more to do while I fly. But to charge me extra for a basic service that is a necessity - that's where I have trouble paying extra.

Airlines know fares can't go up too much more without reducing passenger demand. There's a point at which people simply won't pay more to fly - and we're nearing that point. Legacy airlines, like American, United, and Delta, are going to cut major capacity this fall, in hopes of reducing the number of seats they have to fill, so they can raise prices on those remaining seats. They think this is the way to make more per seat mile (the amount they make by flying each seat on each plane one mile - a standard airline measurement of costs/revenues/profits).

That's not necessarily a good business model, and here's why: low cost carriers, such as Southwest, jetBlue, and Frontier, will just add seats in the markets the legacies vacate, spilling more low fares into the legacies' top markets. The low fare model, with much lower maintenance, crew, and overhead costs, can offer a fare at $200 round trip and still make $5 or $10 in profit, where the legacy airlines would lose $5 or $10 on the same fare.

So here's what you're going to see: legacy airlines angering their passengers by nickel and diming them. Legacy carriers will draw fewer passengers. Legacy carriers will shrink (American is already doing all of these things).

Then, low cost carriers will add flights where legacies drop out. Low cost carriers will further erode the potential revenue with lower fares. Then, the legacies will cut even more, blaming the low cost guys for putting too many seats on the market.

There is demand for air travel right now. Airlines are seeing record load factors - the percentage of seats filled on each flight. People are traveling. There isn't, necessarily, an overcapacity problem. There would be too much capacity if planes were empty. They're not.

The legacy airlines have a much different problem. A problem with their business plans. They simply can't compete with the low cost guys on fares. Only a radical change will allow for them to compete, no matter what the cost of oil does. Extra charges aren't the long term answer.

Many in the industry believe, as the legacies shrink, low cost carriers eventually carry the majority of domestic passengers. Already Southwest is the country's largest airline in terms of the number of passengers carried.

Will fares go up? You bet - on all airlines. The reality of high priced fuel will necessitate higher fares. But charging extra for things that should be considered necessary for the travel experience isn't going to make American profitable again.

I want to know what you think. E-mail me at jpenning@kgw.com.

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