Airlines have best quarter ever … thanks baggage fees!

by Tom Johansmeyer on

Every time you pay to check an extra bag you’re making someone’s life better. The latest data from the U.S. Department of Transportation reveals that the third quarter of 2010 was the most profitable for the U.S. airline industry since the department began keeping score in 2002. The industry’s operating profit margin hit 10.5 percent in aggregate. Low-cost carriers, as a class, had an operating profit margin of 11 percent, its best performance since hitting 11.2 percent in the third quarter of 2006.

How did the airline industry pull this off? Recovering economic conditions helped, of course, but so did the stuff that passengers have gotten comfortable complaining about. More than $900 million in third-quarter revenue came from baggage fees, with another $590 million from reservation change fees. Then, there was another $646 million in ancillary fees. It all adds up to more than $2 billion for a single quarter.

So, while we’re all complaining about these extra fees, it looks like many of us are paying them, too.Spirit picks up the highest percentage of its revenue from ancillary fees at 26.9 percent, up from 24.2 percent in the second quarter of 2010 and 20.6 percent in the third quarter of 2009. Allegiant was next at 9.7 percent. Delta and US Airways derived 7.7 percent of their revenues from ancillary fees, with Southwest at 6.7 percent.

Of course, the money isn’t just going into the pockets of airline employees and executives. The six network airlines spent 25 percent of their operating expenses in the third quarter on fuel. United Airlines spent the most on fuel among network carriers – 25.7 percent of total revenue – with Allegiant leading low-cost carriers at 44.1 percent.

Before you feel too sorry for airlines when it comes to fuel costs, remember those profits. Four network airlines had double-digit operating margins, along with four low-cost carriers.

[photo by Tracy O via Flickr]

Delta: single large airline looking for Virgin partner

by Tom Johansmeyer on

I hope you haven’t become too attached to Virgin Atlantic. The airline has gotten its share of calls lately about potential mergers, but they are qualified with expressions like “early stages” and “far too early” to say anything about. This isn’t all that surprising, given the strength of its brand and the fact that the airline hired Deutsche Bank to help it evaluate its available growth opportunities.

Word on the street is that Delta is sniffing around, but neither Delta nor Virgin Atlantic would say anything about it.

The notion of a merger with an airline of Delta’s size is interesting, as majority owner of Virgin Atlantic, Sir Richard Branson, didn’t have much in the way of positive commentary for the British Airways/Iberia deal, which he believed would lead to higher prices and lower competition.

But, the aviation business is feeling the urge to merge, and analysts are saying that Virgin Atlantic needs a big buddy in order to compete effectively, the BBC reports.

[photo by eisenbahner via Flickr]

Which airline made the most money on baggage fees?

by Tom Johansmeyer on

Last year, baggage fees were used by airlines to make up for lost fare revenue, as the recession kept people on the ground. This year, it’s just been a great source of extra revenue, as passenger traffic and fares are up – and the fees haven’t gone away. Almost all airlines are getting in on the action, some more egregious than others.

Well, data for the third quarter of 2010 is in, and we can finally take a look at who’s hitting us hardest … and for how much. The numbers will probably shock you. The top baggage fee-grabber owned close to 30 percent of the total baggage fees charged in the United States, a market that has reached $2.6 billion for the first three quarters of the year, and the top five dominate with approximately 80 percent of the total fees charged for bags, according to data from the Department of Transportation.

Let’s take a look at the top five airlines for baggage fee snatching (and then the rest):1. Delta Air Lines, $733 million: in fairness, Delta is the largest airline in the United States, so it’s to be expected that it will generate the most revenue.

2. American Airlines, $431 million: the third-largest airline hits the #2 spot for baggage fees, implying an aptitude for prying open customer wallets yet to be recognized by its competitors.

3. US Airways, $388 million: again, this is an impressive take, as evidenced by the distance between US Airways and Continental, in the #4 spot.

4. Continental Airlines, $258 million: this almost makes the airline look downright reasonable, especially when it’s year-to-date baggage fees aren’t even as substantial as what Delta raked in during the third quarter alone!

5. United Airlines, $239 million:

And, the rest:

6. AirTran Airways: $112 million

7. Alaska Airlines: $81 million

8. Spirit Air Lines: $56 million

9. Frontier Airlines: $44 million

10. JetBlue Airways: $43 million

11. Allegiant Air: $43 million

12. Hawaiian Airlines: $40 million

13. Virgin America: $27 million

14. Southwest Airlines: $23 million

15. Republic Airlines: $18 million

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16. Horizon Air: $13 million

17. Sun Country airlines: $9 million

18. Mesa Airlines: $2 million

19. Continental Micronesia: $2 million

20. USA 3000 Airlines: $2 million

[photo by The Story Lady via Flickr]

Airlines, airports and passengers: nothing but gains this year [INFOGRAPHICS]

by Tom Johansmeyer on

There are a whole lot more of us flying this year: 4.3 percent more, to be exact. That’s the increase in domestic air traffic from September 2009 to September 2010, according to the latest data from the U.S. Department of Transportation. In that month, U.S. airlines had 57.3 million passengers, leading to the largest year-over-year gain since September 2007. Meanwhile, international passenger traffic on U.S. flights surged 9.4 percent year over year.

For the first three quarters of 2010, scheduled domestic and international passengers were up 1.5 percent, suggesting that the recovery has gained momentum throughout the year. Domestic passengers gained 1 percent, with international passengers up 5.3 percent. Relative to 2008, though, passenger traffic is off 6.8 percent.

So, who wins? Of course, the airlines have had a relatively fantastic year, especially the worst of them. Delta, considered bottom of the barrel, surged from #3 in September 2009 to #1 in September 2010, with more than 9 million enplaned passengers, up 68.6 percent year over year (but don’t forget that the Northwest merger plays a role in this. Delta‘s also the top dog for the first nine months of the year for the same reason, followed by Southwest, American Airlines and United Airlines.


Atlanta Hartsfield-Jackson International Airport remains the busiest in the United States by a considerable margin. Close to 32 million passengers passed through in the first nine months of 2010, an increase of 1.1 percent year over year. Atlanta led Chicago O’Hare, which came in second, by more than 9 million passengers so far this year. For the greatest gains, look to Charlotte: it was eighth on the list but posted a growth rate of 6.5 percent YTD.

Las Vegas was the only airport in the top 10 for the first nine months of 2010 to post a year-over-year decline. The number of enplaned passengers dropped by a rather substantial 3.6 percent year over year, hardly surprising given the fact that the Las Vegas tourism business has been slammed by the recession. Also, outbound traffic from Las Vegas is likely constrained by the local economy, which has been battered pretty badly (as real estate prices indicate).


Even though the number of passengers increased for airlines and airports, the number of flights operated slipped 1.2 percent from the first nine months of 2009 to the first nine months of 2010. Likely, the airlines were tightening up their flights, making better use of available seats and cutting expenses.

[photo by Yaisog Bonegnasher via Flickr]

How much are you really paying for your plane ticket?

by Tom Johansmeyer on

We’ve heard airline employees gripe ad nauseam about how flying just isn’t what it used to be … because it’s so much cheaper than it was back in the glory days. True, we’re looking at a much different world post-regulation, but that was so long ago that it isn’t relevant any more.

So, what about today? Are airlines still getting hammered in the deal (as they contend), or are consumers giving ’til it hurts? The answer, of course, is somewhere in the middle.

You probably saw my story this week that puts plane tickets up 13.1 percent year over year for the second quarter, though it really just offsets a 13 percent decline last year. Nonetheless, the $341 average domestic fare is close to the 2008 peak of $346 and the third-highest average domestic fare attained since 1995 (2006 came in second at $342). It really does feel like we’re getting screwed.

Think again. Airline employees have a point, but only narrowly.


Adjusted to 1995-equivalent dollars, the average domestic fare this year is only $238. That’s a 20 percent drop from the $297 average fare in 1995. Over the past 15 years, the airline industry has lost a lot of ground. The peak, in 1995-equivalent dollars, was reached in 1999 ($302) and maintained in 2000 ($300) before the slide began. Even in this analysis, however, 2010 shows a marked improvement from the 2009 level of $213 (in 1995-equivalent dollars).

So, in pure cash, the airlines have been getting shafted. The industry’s position falls apart, however, when you consider the inclusion of ancillary fees, which are expected to be good for $8.9 billion in airline profits this year, according to IATA. The inflation-adjusted fare we’re paying doesn’t include the amenities we used to receive … and the airlines are generating extra income from what they used to include in the price of a ticket.

There’s no doubt that airfare is cheaper than it’s been in at least a decade and a half, but you’re not getting the value you used to.

[photo by Mr. T in DC]