Airlines rake in huge profits from fees

Delta's revenue led the industry during the first three quarters of 2010.

By TheStreet Staff Dec 14, 2010 4:51PM

Airline meal © Blend Images/SuperStockBy Ted Reed, TheStreet

 

U.S. airlines collected about $4.3 billion in fee revenue in the first three quarters of 2010, an amount roughly equivalent to the industry's anticipated total profits for the year.

 

With the fourth quarter historically one in which airlines lose money, it is possible to conclude that nearly every penny of the industry's profits will result from fee income. U.S. airlines are expected to earn about $4 billion in 2010 after losing $23.7 billion the previous year.

 

Speaking at an investor conference last month, US Airways (LCC) CFO Derek Kerr said the airline would have about $500 million in 2010 fee revenue, including $475 million from baggage fees. That is roughly equivalent to US Airways' expected 2010 profit.

 

The Bureau of Transportation Statistics on Monday reported fee revenue for the first three quarters. Among the individual carriers, Delta (DAL), the largest airline, had the highest fee revenue, about $1.3 billion. American (AMR) had about $785 million. Combined, United (UAL) and Continental had about $922 million.

Avondale Partners analyst Bob McAdoo said data show that per-passenger fee revenue has been declining since reaching a peak in February. "It's clear that people are changing their patterns of behavior," McAdoo said. "They are packing lighter and carrying fewer bags."

 

Meanwhile, on Monday, Continental introduced a new fee called FareLock, which enables customers to hold a reservation and lock in the ticket price for 72 hours or for seven days without committing to actually buying the ticket. The fees begin at $5 for a 72-hour hold. For $9, you get a seven-day hold.

 

"FareLock is an innovative option for customers who need extra time to plan their travel before purchasing a ticket,"  Chris Amenechi, the managing director of merchandising, said in a prepared statement. Continental will continue to allow changes or a refund, without a fee, within 24 hours of booking.

 

Aviation consultant Robert Mann said the new fee reflects that airlines seek to "find something customers say they want, (something) you categorically won't give them, and give it to them for a fee.

"Now the question is: Why would anyone buy it?" he said.

 

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1Comment
Dec 15, 2010 11:33AM
avatar

Start Flying Southwest if you have a problem with Luggage Fees.

 

Hopefully, Airlines will do away with Seats, and we will all be able to just stand for short duration flights. They will be able to pack passengers in better, and you will not have to share any arm room with anyone. I wonder how many passengers could be packed into an airplace provided that all of the seats were ripped up and taken out. No need for snacks, soda, coffee, or water. Heck, start charging to use the Restroom. Charge $1 to go urinate, and $2 to defecate.

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