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The Economics Of Airline Baggage Check; To Pay Or Not To Pay


Well, our next item may not be the stuff of a Justice Department antitrust investigation, but it is a case of nearly all airlines doing the same thing. I'm talking about baggage fees. JetBlue, until now a holdout, will charge you to check a bag. That leaves Southwest as the only airline that doesn't. I spoke with Rick Seaney, the CEO of farecompare.com, and I asked him why JetBlue caved.

RICK SEANEY: You would have to sort of attribute it to their investor community. I have been on the calls for JetBlue and for Southwest. The question gets asked every time. Why aren't you charging for a bag fee? Last year, $3.1 billion in domestic checked bag fees, and neither Southwest nor JetBlue are participating in that. And I think, finally, they succumbed and said, hey, all the other airlines are doing it. We only have three legacy airlines left - American, United and Delta. We're not going to get dinged for this anymore, and I think that's why they decided to go ahead and do it. They actually announced it late last year and are just now implementing it now.

SIEGEL: You said they're not going to get dinged for it. I read a quotation attributed to a JetBlue executive saying that when they survey customers, all sorts of things matter, like Wi-Fi, for one. But they don't see the free baggage check standing out as a huge plus.

SEANEY: You know, JetBlue is known as a beloved airline for - many times for business travelers. Business travelers don't tend to check a lot of bags. They like to get out of the airport quickly. They don't want to wait at carousels, for example. So I think when they're polling their business customers, it's not that big of a worry. Most of them have status. If you have some sort of airline status, a lot of these bag fees are waived, so it's really about the consumer who likes to comparison shop, who doesn't have a lot of loyalty. And that's who's really getting charged these bags fees.

SIEGEL: Fees for baggage look like a win-win for the airlines. You mentioned the billions of dollars that airlines make from baggage fees. But also, if you want to avoid that fee, you carry the same bag onto the plane. And by doing so, you become a volunteer baggage handler and ease the burden on the airline.

SEANEY: Yeah, no, there's a couple of things that are really great for airline economics, not necessarily for consumers. One of them is the fact that these bag fees are not taxed. So if they actually charge you the bag fee as part of your fare, it would be taxed at 7 and a half percent, so that's not taxed. Clearly, every time - anytime I've seen it, a Senator gets charged a bag fee, we have new legislation to either get - purposed legislation to either get rid of bag fees or to tax them. So - so that's one of the things, sort of the economics there. And there are so many ways to get around the bag fee - elite status. Branded credit cards will wave those fees if you have a certain branded credit card. So it's a bit of a hobby. Just like trying to find the best airfare, getting rid of the bag fee is also something that's quite popular.

SIEGEL: If adding baggage fees made sense to JetBlue, how far away is Southwest from the same decision?

SEANEY: Yeah, every time I talk about Southwest, I picture Wile E. Coyote hanging off a limb because they're the last one that's sitting out there that hasn't charged a bag fee. Their investors are clamoring for it. It's really probably worth a billion dollars or so to Southwest Airlines or a little bit less, as much traffic as they have. And I do believe that you haven't seen their commercials lately touting, you know, no bag fees or bags fly free. They're preparing the public for this. I hope it takes a couple more years before they decide to do it.

SIEGEL: Well, thanks for discussing the inevitable bad news with us about baggage fees.

SEANEY: Great. Thank you.

SIEGEL: That's Rick Seaney, CEO of farecompare.com. Transcript provided by NPR, Copyright NPR.