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Delta rakes in $1.7B in baggage fees

Airline baggage fees are bringing in suitcases full of cash for Delta Air Lines, the dominant carrier in Metro Detroit. Airlines profits depend more on passenger fees than ever before, and Delta is flying with the highest total fees of any airline.

The Atlanta-based carrier hauled in $952 million in baggage fees last year — more than any other carrier, according to data from the Department of Transportation. Delta also racked up the top total in reservation cancellation and change fees — a whopping $699 million. That's 64 percent and 48 percent more, respectively, for baggage and ticket change fees than American Airlines, the second-biggest collector of those charges, brought in during 2010. Delta declined to comment Tuesday.

All together, Delta is collecting $1.7 billion in fees beyond what passengers pay for tickets.

But those fees are the tickets to profits for the nation's airlines, which struggled through the past decade before being hit by soaring oil prices and the recession. Federal data shows that airlines collected $5.7 billion in baggage and ticket-change fees last year, and although official statistics won't be released until later this month, one industry trade group estimates North American airlines eked out a profit of just $5.1 billion in 2010.

"Without baggage fees, the industry would have lost another $3 billion to $4 billion last year," said Bill Swelbar of the International Center for Air Transportation at the Massachusetts Institute of Technology. "We've had two years where the bag fees have been in effect. They're not going away."

Baggage and other fees not only help airlines edge into the black, but also are a way to make ticket prices appear low to online bargain-hunters.

Out at Metro Airport on Tuesday, Tom Gropp, a flier from Denver, said he understands that profits are behind the charges for checked baggage. "They do it because they know most people shop ticket prices," he said.

Gropp, a small business consultant, travels under a frequent flyer program that waives the fee for his checked bags.

People who don't travel often may not think of the cost, but that's changing, he said. He's noticed more people carrying bags on board and stuffing them into overhead compartments. "People are getting hip to it," he said.

Just how high fees have soared is obvious when you look at Delta's last few years of fee income. Besides the pressures of rising fuel prices and recession-stricken travelers, Delta's merger with Northwest Airlines may also be behind its new fortune in fees.

United Airlines Resumes Operations

Has resumed its normal flight schedule after its flights were disrupted on June 17. The carrier’s network connectivity failed miserably following computer failure. As a result, most of its flights were cancelled and United Airlines came to a complete halt for two days.  

The computer malfunction led to customer service issues like reservation and check-in problems. On a usual day, fog, maintenance or shortage of staff curtail 15 to 30 flights of the carrier. However, the technical snag led to the cancellation of approximately 100 flights globally within two days, mostly affecting Chicago’s O’Hare International and Denver International, the two largest hubs of United Airlines.

The carrier returned to its normal services on June 19, after the computer malfunction was fixed. Flight officials said that operations were resumed at United Airlines’ Charlotte, North Carolina hub.

United Airlines merged with Continental Airlines to form a new company, United Continental Holdings in October 2010. The merger created the largest airway in the U.S., overtaking Delta Airlines , which acquired Northwest Airlines in 2008. United and Continental continue to operate as separate carriers, and will do so until they receive their single operating certificate, which is expected by year-end 2011.

We believe that the recent disruption in United Airlines’ flights will not leave a significant impact on United Continental’s consolidated revenues as we foresee a profitable summers.

Passengers were reported to have paid higher prices on leisure travels in May compared to the same month last year, which resulted in approximately 14% to 15% jump in revenue per available seat mile. The average occupancy level in May flights was above 83% and is expected to further increase in the months ahead.

Additionally, fuel price volatilities have also contributed in higher fares. To enhance profitability, United Continental reduced flight capacity by 1% in May and plans to reduce 4% additional capacity in September. The strategy will not only boost occupancy level but will also push fares going forward.

We currently maintain our long-term Neutral rating on United Continental supported by Zacks #3 Rank (Hold).

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