Lower Fuel Prices, Extra Charges

Q. When airlines started charging extra for checked luggage, soft drinks and other items, we were told it was because of rising jet fuel costs. Now that jet fuel prices have dropped, why do these extra charges continue?

A. A great question, considering that jet fuel prices have dropped about 50 percent over the past year. The explanation, according to Victoria Day of the Air Transport Association, a trade group representing major airlines: Business is bad, and those extra charges help chip away the industry’s $6 billion operating loss caused in large part by last year’s jet fuel price spikes.

“For most of 2008, jet fuel represented 35 to 50 percent of operating expenses, compared to its 10 to 15 percent historical average,” Day says. “The recent reduction in fuel prices has been a tremendous help, but with a softening economy and fewer passengers, airlines are trying to come up with some sustained profitability.”

So how much help comes from those extra fees—$15 to $25 for each checked luggage piece, $2 for onboard sodas and, in some cases, extra for aisle seats?

Day says she doesn’t know, but published reports indicate that U.S. Airways, which recently announced a $7 charge for a take-home pillow-and-blanket kit, expects to generate $500 million in 2009 from “ancillary revenue”—the term airlines use for the service fees that used to be included in the ticket fare but now cost extra (onboard meals, pillows, extra legroom, baggage charges, etc.). JetBlue doubled its ancillary revenue in 2008 to about $350 million and expects another 30 percent boost this year. And AirTran, which collected $77 million in ancillary revenue in 2005, expects more than $300 million this year from its add-on fees. So far, Southwest Airlines has bucked this trend—it doesn’t charge for checking up to two pieces of luggage, and continues to provide complimentary snacks and beverages.

Sid Kirchheimer is the author of Scam-Proof Your Life (AARP Books/Sterling). Send your queries about scams, deals and other consumer issues to Sid at asksid@aarp.org. If you want a personal response, please include a telephone number or e-mail address. Because of the volume of mail received, Sid regrets that he can’t answer all questions.