Passengers are paying more to check bags and bolstering airline revenue with other spending outside the cost of just a ticket, even though the COVID-19 pandemic massively cut into air travel in the last 18 months.
With ticket prices dropping to historic lows in 2020, Fort Worth-based American Airlines managed to get nearly $40 out of the average customer in bag fees, priority boarding, lounge usage and credit card programs, according to the CarTrawler Yearbook of Ancillary Revenue by IdeaWorksCompany. That’s 15% more than in 2019, a relatively normal year for flying.
Dallas-based Southwest Airlines brought in $46.63 from the average passenger, nearly 40% more than 2019, according to IdeaWorksCompany’s data.
Still, those ancillary fees brought in less total revenue for airlines than in non-COVID years because the number of passengers was way down. Ancillary fees dropped by more than 40% at both American and Southwest, along with other major airlines such as United and Delta. Even low-cost carrier Spirit Airlines, which thrived on leisure travelers and low fares in 2019, saw a 33% total drop.
At American, that was a loss of more than $3.7 billion in revenue.
But in a year when airlines struggled to stay afloat financially, IdeaWorksCompany founder Jay Sorensen was surprised that carriers didn’t do more to get customers to upgrade seats, check extra bags or board flights earlier.
“There was so much focus on airfares, that no one really did anything different with fees,” Sorensen said. “It might have been a missed opportunity for discounts.”
For the last 18 months, airlines have been dealing with a wonky world in which past passenger flying patterns provided little clarity on how upcoming months might play out. Travel numbers are still largely shaped by rapidly changing government restrictions in reaction to unpredictable surges in COVID-19 cases.
Only in recent weeks have airlines begun reducing fall schedules even after complaints of overcrowded airplanes and staff shortages in the summer.
Still, ancillary fees and credit cards were a bright spot for airlines in an otherwise dismal 2020 year, when the financial livelihood of the industry was threatened and U.S. airlines totaled more than $35 billion in losses. American Airlines turned to shipping cargo, furloughs and layoffs in order to cut costs. Even with looser spending by some passengers, American lost $8.9 billion even with nearly $6 billion in government grants to help cover employee payrolls.
Even though baggage fees didn’t go up at airlines, American Airlines passengers spent more than ever to check bags, about $10.15 per person, according to federal bag fee data. Even Southwest, which doesn’t charge for the first two checked bags, made more money per passenger from bag fees.
Credit card revenue emerged as a pandemic win for airlines because consumer spending remained hot, even when travel was subdued, Sorensen said. That means customers will have pent-up credit card airline miles on hand, which will turn into revenue when passengers book tickets, he said.
“It’s a delicate balance, though, because the airline industry would have loved to have you redeem those airline miles in 2020 and early 2021 when there were far more empty seats and they were hurting for revenue,” he said.
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