US airlines earn billions through fees on checked bags and reservation changes
US airlines are earning a lot, with fees on checked bags and reservation changes contributing a lot to the earnings. According to the Department of Transportation, last year, airlines' net income dropped to $7.5 billion from $12.2 billion in 2013. But generally, analysts have a preference of observing operating profit. Considering that, the airlines performed better in 2014 than 2013.
Last year, pre-tax operating profit increased to $14.6 billion from $11.3 billion in 2013. Airlines earned $3.5 billion in bag fees, up 5% over 2013 and also earned $3 billion in reservation-change fees, a 6% increase. Fees started increasing, when airlines started losing money in 2008 and also faced a sharp increase in fuel prices.
At Spirit Airlines, which publicizes low fares, generates only 63% of its revenue from fares. However, Southwest allows customers check two bags or change a reservation without any charges. It gets 95% of its revenue from the ticket price.
According to Charlie Leocha of the Consumer Travel Alliance, airlines should cut fees, but he is doubtful whether it will happen since the fees contributes a lot to the earnings. He is a supporter of a proposed federal rule, under which airlines need to improve disclosure of the amount of fees that increases total bill of a traveler.
As per Jean Medina, a spokeswoman for the industry trade group Airlines for America, fees allow airlines to charge customers for things they consider important while keeping base fares low. She added that airlines are using 'modest' profits and savings from lower fuel prices so as to invest in new planes and facilities and to give incentive to employees and shareholders. As per reports, net income at the 27 airlines dropped to $7.5 billion last year from $12.2 billion in 2013.