Airline profits soar on bag fees, other charges

Delta ranks first in total ancillary fees collected


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Sept. 21--U.S. airlines posted operating profit of $3.09 billion in the second quarter, and much of the credit goes to their bag fees and other extra charges.

The U.S. Bureau of Transportation Statistics said the 21 passenger airlines in the group brought in $2.1 billion in ancillary fees in the three months that ended June 30: $893 million for baggage, $594 million for reservation changes and $618 million from other types of fees.

The revenue from the extra fees lifted the airlines to an operating margin of 9 percent, the highest margin in the eight years that BTS officials have been tracking that data. Operating margin is operating revenue divided by operating profit.

The use of ancillary fees has exploded since United Airlines Inc. pioneered a fee for checked bags in early 2008. Almost all carriers now charge passengers for their second checked bag, many charge for the first checked bag and Spirit Airlines Inc. began levying a charge in August for carry-on bags.

The fees have spread beyond bags into many other areas, and airlines have aggressively raised both new and old fees.

The "new" money has spelled the difference between little profits and big ones for many carriers. Among the nine largest U.S. carriers, the group collected $1.93 billion in ancillary fees in the second quarter, amounting to 68 percent of those carriers' operating profits of $2.95 billion.

The largest carriers that operate connecting hubs -- United, Delta Air Lines Inc., American Airlines Inc., Continental Airlines Inc. and US Airways Inc. -- have seen their collections soar in the past two years, particularly on baggage fees.

In second quarter 2008 as the baggage fees were just kicking in, those carriers brought in $149.2 million from those fees. Two years later, the total for the five airlines had jumped to $719.5 million.

Among other findings in the BTS quarterly report:

--Delta ranks first in amount of total ancillary fees collected, $681.6 million, up 67.5 percent from second quarter 2009. Next are American with $292.3 million, up 18.6 percent; US Airways, $255.6 million, up 12 percent; and Southwest Airlines Co., $201.7 million, up 35.9 percent.

--Southwest, which doesn't charge for the first or second checked bags, ranks second in amount of miscellaneous fees. Those include all fees other than for baggage and reservation changes. Its total of $193.7 million in other miscellaneous fees trails only Delta, $243.5 million.

--Alaska Air Group Inc., with an operating margin of 15.5 percent, posted the best operating margin among the 21 carriers. It was followed by Allegiant Airlines Inc., 13.9 percent; Southwest, 11.5 percent; and Delta, 11.2 percent.

--Low-cost carriers, which include such airlines as Southwest, JetBlue Airways Corp. and AirTran Holdings Inc., had the best operating margin as a group, 9.9 percent. That's up from 7.2 percent a year earlier.

--Next were the large network carriers with a 9 percent operating margin, a reversal from a -0.5 percent margin in second quarter 2009.

--Last were regional carriers, which fell from a 7 percent margin a year ago to a 6.1 percent margin in second quarter 2010.

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