In a highly commoditised environment where airlines continue to experiment with bag and other ancillary fees, Tom Bacon believes the answer to the question has to be yes!

In March 2008 in response to rapidly escalating fuel prices, United Airlines introduced a $25 fee for the second checked bag; until then, most US airlines included two checked bags as part of the base fare. Other US airlines followed.  A few months later, American introduced a charge for the first bag ($15) and other airlines followed. 

 So in 2014, we ‘celebrate’ the six-year anniversary of bag fees in the US.

Celebrate?  Really?

Certainly, the US airlines that charge bag fees have much to celebrate. In the second quarter of 2014, bag fees for American, United, and Delta reached $673 million.  For the four quarters ending June 2014, bag fees for these three were $2.5 billion.

Airlines, of course, say that breaking out bag fees has allowed them to keep base fares lower. There have been analyses to back this up – and reports to refute it.  Perhaps the impact depends on the market – and with consolidation in the industry, there has been much change in individual market competition.  ‘Other’ factors may overwhelm ancillary fee changes in many markets.

Now, after six years this big question is this: is there anything we can say about bag fees from a customer perspective?  In my view, there are four conclusions:

1.  Bag fees have leveled off.  In fact bag fees reported by the big three hasn’t changed since second quarter 2010.  Bag fees increased dramatically from 2008 to 2010 but fee revenue hasn’t increased for the past three years.  Bag fees may now be ‘mature’.

2.  Bag fees have led to differentiation among carriers.  Southwest and jetBlue still don’t charge fees.  Spirit and Frontier Airlines both charge for carry-on bags as well as checked bags. There are some differences among carriers in the specific fees they charge for the first and second bag.  After decades of fare matching, bag fees – and other ancillary fees – now represent a new opportunity for airlines to offer different pricing options, potentially offering travellers more choice.

3.  Communication of fees has improved….albeit slowly.  After six years, customers expect to be charged for checked bags.  So, Southwest has had to spend huge advertising dollars on saying they don’t.  And Frontier Airlines now insists that web customers specifically acknowledge they understand their carry-on bag charge – rather than surprise travellers with the carry-on fee when they arrive at the airport.

4.  Airline mishandled bag performance has improved dramatically.  Department of Transport statistics show that mishandled bags per 1000 passengers has fallen from over seven in 2007 to less than half that between 2012 and 2014.  As travellers check fewer bags, the airlines have been able to better manage the checked bag operation.  One purpose of charging for a service, besides gaining more revenue, is changing customer behavior in a way that benefits the airline by allowing the operation work more smoothly or more efficiently.  In this case, this benefits travellers too.  Of course, the unintended consequence is more carry-ons – driving full overhead bins and longer boarding times.  Spirit and Frontier’s carry-on bag charges are partially intended to mitigate these effects.

Looking to the future: what’s next for bag fees? 

Potentially, the leveling off of bag revenues represents a maturation of this fee.  Likely, airlines will continue to experiment with other, more value-added, ancillary sell-up opportunities. 

Investors in jetBlue now anticipate a rethink of its no fee strategy but Southwest continues to believe its maverick status benefits them.  With Southwest not charging for checked bags, perhaps the other airlines are reluctant to further increase their existing fees.

No large carrier has matched Spirit or Frontier in charging for carry-ons.  Again, Southwest’s policy may limit what many other airlines can charge for bags, whether carry-on or checked.  Rather than implementing a new charge for carry-on bags, the larger airlines continue to invest in bigger overhead bins.

It will be interesting to see how jetBlue travellers react to their new bag fee.  Will jetBlue see a dramatic increase in total revenue or will they lose passengers who have, in the past, chosen this airline specifically for its no-bag-fee policy? If jetBlue is successful, it will be interesting to see if Southwest can continue to justify its maverick no-bag-fee policy.  Southwest has repeatedly said that they believe this policy has been revenue-positive for them; certainly, it reinforces its customer-friendly brand.

So, even though fees have now been stable since 2012, there continues to be change on the margin.  Experimentation in fees – both bag fees and other ancillary services -- has been tremendously healthy for airlines – and ultimately driven more choice for travellers.  Despite the mixed data on base fares, bag fees in fact have benefited travellers in other ways.

Tom Bacon is 25-year airline veteran and industry consultant in revenue optimisation.  Questions?  Contact Tom at tom.bacon@yahoo.com or visit his website