Charges For Checked Bags, Other Services Examined

The fees airlines charge for checked baggage and other services came under the scrutiny of the House Transportation and Infrastructure Subcommittee on Aviation at a Capitol Hill hearing Wednesday. A panel of airline executives was questioned by the committee about the recent trend followed by most airlines to charge extra for checked bags, seat selection, and in one case, a proposal to charge passengers for space in the overhead bin.

Full committee Chair James Oberstar (D-MN) said that he and subcommittee chair Jerry Costello (D-IL) requested a study by the Comptroller General in August 2009 due to the proliferation of ancillary fees charged by the airline industry. He said they were concerned that fees – many of them inescapable – were becoming excessive and were diverting revenue from the Airport and Airway Trust Fund, the balance of which is nearing zero, as well as the impact of such fees on consumers.

"For example," Oberstar said in his prepared remarks, "a family of four traveling on a week-long vacation with each person checking a bag could pay up to $200 in baggage fees on top of airfare. This does not include fees for meals, beverages, blankets, pillows, early boarding, and more, which can quickly add up. While some have said that ticket prices have decreased, I am concerned with the addition of baggage and other fees, passengers may be paying the same price, if not more, for the total cost of their air travel."

Rep. James Oberstar

Oberstar said that unbundling of fares and with a decline in passenger traffic have driven down average ticket prices, according to the GAO, but at the same time ancillary fees have skyrocketed. "However, few of these fees are taxed for the Airport and Airway Trust Fund, the primary means for funding airport improvement and air traffic control modernization," he said. "Aviation excise taxes are necessary to support the Trust Fund, which in recent years has provided about 80 percent of the Federal Aviation Administration’s budget. I am extremely concerned about how unbundling fees will affect the future of the Trust Fund."

But Spirit Airlines CEO Ben Baldanza, who's low-cost airline led the move to additional fees three years ago, defended the industry practice as being a benefit to the traveling public by offering lower overall costs. "Carrying more than one bag is not necessary for all travelers and we believe it is unfair to charge those customers for extra services they do not use," Baldanza said. "Indeed, it is the basis for Spirit’s policy to unbundle services not essential to passenger transport. The carry on fee for most passengers is $20 - $30. Spirit reduced its base fares to offset these charges. Spirit also lowered its checked bag charge to encourage passengers to check their bags."

Baldanza also defended the fee which goes into effect August 1st for space in the overhead compartments on Spirit airliners. "The primary reason for the carry-on charge was to reduce the amount of baggage brought into the cabin. Carry-on bags have become a nightmare for passenger boarding and deplaning. They create a safety risk for both passengers and flight attendants and lead to costly flight delays. Significantly, last March the Association of Flight Attendants reported that 80 percent of flight attendants had been injured during the last year by moving carry-on bags in and out of overhead bins." Baldanza said the charge does not apply to such items as required medical equipment and baby strollers.

He also disputed the committee's assertion that the fees do not affect the Airport and Airway Trust Fund. "These unbundled services do not impose any costs on airport infrastructure, on the nation’s air traffic control system or any other government services funded by the aviation federal excise tax," he said. "As such, no additional tax burden should be imposed on the cost of these ancillary services." He said the best way to boost tax revenue for the Trust Fund was to get more people flying, and that Spirit's fee structure was designed to do just that. But he also said it keeps other airlines in check, using as an example Spirit's pilots strike in June. "(O)ther carriers, including low fare carriers, immediately raised prices," Baldanza said. "For example, JetBlue raised its roundtrip fare in the Fort Lauderdale-San Juan, Puerto Rico market from under $200 to over $600, while at the same time putting out a press release that it was “helping Spirit’s customers.”

The GAO report does indicate, however, that the current fee structure has affected receipts to the Trust Fund. In his testimony, Dr. Gerald L. Dillingham, Director, Physical Infrastructure Team for the GAO, said revenues to the Trust Fund have fallen in recent years, from about $12 billion in fiscal year 2007 to about $11 billion in fiscal year 2009. The revenue fell due to a variety of factors, including lower fares and fewer passengers in 2009 than in 2007. "If baggage fees in that year had been subject to the 7.5 percent excise tax, an additional approximately $186 million in excise taxes or less than 2 percent of total Trust Fund revenues would have been credited to the Trust Fund," he said. "Although this percentage is relatively small, it is likely to grow based on recent trends. In the first quarter of 2010, airlines reported a 33 percent increase in revenues from baggage fees compared to the corresponding quarter in 2009. Since DOT guidance requires airlines to report separately only revenues from baggage fees and  reservation change and cancellation fees, we were unable to estimate potential collections from other untaxed optional fees."

Still, not all airlines have jumped on the additional fee bandwagon. Southwest Marketing And Revenue Management Vice President Dave Ridley said his airline would not "nickel and dime" its customers with additional fees. "While we’re not fans of fees for services that historically have been part of the base fare, we believe strongly that the decision on whether or not to charge a fee for an airline product or service is a business decision best made by each individual airline," he said. "Southwest made the conscious decision to limit our Customers' fee exposure to what we view as unreasonable and annoying fees. That was our choice. Other airlines have chosen a different business model and should have every right to do so."

Southwest is currently the nation's largest carrier based on the number of passengers boarded, claiming to carry over 100 million passengers every year.

FMI: http://transportation.house.gov