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Oil Prices Drop, But Airlines Still Charging Hefty Prices

continential1.jpgWhen airlines started charging some passengers $15 or more earlier this year to check their bags, they blamed soaring fuel costs. Since then, oil has plummeted. Yet the industry hasn’t stowed away the bag fees.

Many of us are still paying to fly with a suitcase that doesn’t squeeze into the overhead bin or under the seat.

The reason is simple: Airlines are still losing money, though now largely because of the recession instead of oil.

And don’t expect the fee to disappear even when the economy rebounds. Airlines are finding the fees to be a reliable source of revenue and say that such charges allow passengers to choose only the services they want.

Passengers, meanwhile, are paying up and grumbling. Many are being socked, on average, $15 for the first bag and $25 for the second.

For the airlines, the bag fees, on top of charges for other once-free amenities, add up to much-needed revenue. The industry is expected to lose $4 billion for 2008, excluding one-time items, despite the plunge in the price of a barrel of oil from $147 in July to around $40 this week, said Calyon Securities airline analyst Ray Neidl.

Airlines now say they are being hurt by the recession, which has caused demand for seats to drop. The International Air Transport Association said global passenger traffic declined 1.3 percent in October from a year earlier.

Airlines also have been weighed down by bad bets they made on the price of fuel when it was skyrocketing. After locking in at prices that looked reasonable earlier this year, some are paying substantially more than market price for a portion of their fuel.

Airlines do not break out the revenue brought in by baggage fees. Airlines say the fees are a new way of doing business in which services that were once bundled into the price of a ticket are offered a la carte.

An October poll of frequent travelers found that half prefer a lower ticket price in exchange for a la carte pricing for food, beverages, headphones and blankets. But the same survey, conducted for IBM, found that 82 percent described the baggage fees as a “rip-off.” By comparison, only 45 percent viewed food and nonalcoholic drinks that way.

After getting off a recent flight to Atlanta, insurance sales representative Cecilia Kolstad said it was crazy she had to fork over extra money to check a bag.

But “if it’s between that and seeing an airline go out of business I guess I’ll pay the $15 because I like to fly,” said Kolstad, 55, of Pembroke Pines, Fla.

Some travelers bypass the fees by packing lighter. Airlines typically waive the fees for passengers who have elite status in their frequent flier clubs, first-class passengers, and travelers on international flights.

Passengers also can get around the fees for the first two bags by booking on Southwest Airlines, though it doesn’t fly to some major cities such as Boston, Atlanta and Miami. But how long Southwest can go without charging the fees is anyone’s guess.

Dave Ridley, a Southwest marketing executive, said in October his airline would be surveying people about charges, and he would not rule out fees in the future.

(Source: Associated Press)

4 Responses

  1. A more important question for us is, perhaps, will Israir or some other discount carrier (as opposed to full service, reputable and expensive airlines such as El Al, British Airways, Delta, etc.) start/resume serving the route between Tel Aviv and North America.

  2. Southwest Airlines hedged their Jet fuel, so they have been paying much lower fuel prices than any other airline…so they probably will go without charging the extra fees.

  3. I agree with the statement that this is a new way of doing business. I don’t think that the airlines should have to stop charging separately for bags. But they should sell the right to check bags with the ticket at the time of purchase, too. Don’t only give me the choice to pay for it at the check-in counter. I should be able to buy a ticket+bag or ticket+2 bags whereever they sell ticekts.

  4. Of course airlines are still charging hefty prices. They are charging you rent for staying at the airport and on the runway so long.

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