Do Those Annoying New Baggage Fees Help Keep Airlines Flying?

07.03.2024 - 15:15 / forbes.com / Delta Skymiles / Warren Buffett / Willie Walsh / Airlines

From January to March, nearly every major U.S. airline raised fees on luggage.

This week Delta became the latest major airline to increase baggage fees. Passengers will now pay an additional $5 per bag on both the first and second bag checked on both domestic and short-haul international routes.

Travelers will now pay $35 for the first checked bag and $45 for the second. Customers in first class and certain Delta SkyMiles Medallion members will be able to evade the fees.

American Airlines raised its fee as well. The fee for the first checked bag on domestic flights goes from $30 to $35 if paid in advance. It will cost you $40 at the airport. American also hiked the fee for a second bag from $40 to $45.

Similarly, on United the first bag price will now be $35 if passengers pay online at least 24 hours before the flight, and $40 at the airport. The fee for a second checked bag will also rise $5, to $45 in advance online, $50 at the airport.

Delta was the last of the Big Three airlines to raise its baggage fees . The company says the first Delta baggage price increase since 2018 will help it stay on pace with rising industry costs.

JetBlue and Alaska Airlines also announced fee increases this year. Southwest Airlines remains the only holdout among the top six US airlines, with both the first and second bag still flying for free. Like other airlines, Southwest does charge for overweight or special luggage like surf boards.

Is it greed or desperation that drives the airlines to tack on these fees? It’s a little of both.

IATA (the International Air Transport Association) says that in 2024 airlines will make a 2.7% net profit margin on record revenues. That statement alone should ring alarm bells. Some 4.7 billion people are expected to travel by air in 2024, and the industry is expected to generate $964 billion in revenue, with just $25 billion in profits.

Depending on the airline and the economy, lots of things could easily turn that slim profit into a loss. These could include new aircraft, rising fuel prices, big contracts for pilots and other workers, and a possible recession along with high travel costs keeping people home.

Warren Buffett famously disliked airlines as investments, saying “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines.”

When Buffett’s Berkshire Hathaway did purchase $10 billion in airline stock in 2016, he ended up dumping it at a loss in 2020 as the COVID-19 epidemic ravaged the industry.

As Willie Walsh, IATA’s Director General, put it, “While the recovery is impressive, a net profit margin of 2.7% is far below what investors in almost any other industry would accept. But