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Airlines to Passengers: Get Used to Paying More to Check in Your Baggage

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Airlines collected a record sum in baggage fees from January to June.

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The increase in baggage fees is also a part of the overarching story of how airlines have been increasingly dependent on ancillary revenue since the industry was deregulated in the 1970s.

When low-cost competitors such as Southwest, Spirit Airlines (NASDAQ:SAVE), and JetBlue (NYSE:JBLU) entered the market, offering cheap airfares by cutting on perks, legacy carriers like Delta and United have had to go in the same direction as well.

In the past, the cost of meals, checked baggage, or the use of reservation agents were built into air tickets, which were priced higher. Customers who didn't check baggage in were in effect subsidizing those who did.

These days, there's an a la carte system, where you pay a low price for your ticket, and decide whether or not you want to forgo the frills (although some would argue the first checked bag isn't a frill).

In fact, airlines have become increasingly dependent on ancillary revenue like baggage fees and reservation change fees. In 2005, ancillary revenue represented 7.1% of United's total revenue. In 2010, that rose to 9.3%. Delta experienced a rise from 8.3% to 13.0% in the same timeframe.

While passengers may have the choice of deciding if they want to pay and check in baggage, they increasing do not have choices in other areas of air travel. In the same report, the BTS notes that as US airlines continue to consolidate in a tumultuous industry, passengers "can expect fewer carriers to choose from [and] fewer flights to smaller cities."

Twitter: @sterlingwong
No positions in stocks mentioned.
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