How Airlines Fumbled the Story and Lost

Are airlines greedy? 

Effective and authentic business storytelling would have led us to form a better impression. 

Remember when we used to get two checked bags with every airline ticket? 

And then those greedy bastards started tacking on additional fees! 

Or that’s what we all thought. In truth baggage fees aren’t the cash cow they appear to be. Airfares are taxed by the government. Separating baggage costs from the price of the ticket reduces taxes that would otherwise be passed through to us passengers as additional cost. 

So How Much Does it Cost the Airlines to Check Your Baggage? 

When airlines handle and transport checked bags, several costs factor into the expense: 

• Labor: Baggage handlers at check-in, security, and baggage claim incur labor expenses. If two handlers work one hour at $20/hour per flight, labor costs are around $40 per flight, which is distributed over the number of checked bags.

• Fuel: Increased baggage weight raises fuel consumption. If a 50-pound bag adds 1.5 gallons of fuel per flight at $5 per gallon, fuel costs are roughly $7.50 per bag.

• Equipment and Maintenance: Baggage handling systems (e.g., conveyors, trucks) require upkeep. Depreciation and maintenance costs can be spread over the number of bags handled annually, adding around $0.50 per bag.

• Insurance and Claims: Airlines must cover lost or damaged luggage claims, estimated at around $0.90 per bag, based on claim rates.

• Airport Fees: Some airports charge airlines additional fees for baggage handling.

These costs add up to roughly $11 per bag. If the airline charges a $40 fee per checked bag, their profit is $29 per bag.

 

 

That sounds usurious … until we know the whole story. 

The Real Costs Airlines Face 

It may surprise you to discover that airlines operate under some of the thinnest profit margins of any major industry. Competition is fierce, and budget airlines drive prices down.  

A portion of each ticket is swallowed up by taxes and fees: 

• Federal Excise Tax: a 7.5% tax on every ticket sold, covering costs associated with maintaining the air transportation system. On a $300 ticket, this adds up to $22.50.
• Flight Segment Tax: A $4.20 charge added for every takeoff and landing. If you’re flying nonstop, you pay this once; if you’re making a connection or have a round-trip fare, it doubles.
• September 11 Security Fee: Post-9/11 travelers pay $5.60 per segment to fund enhanced airport security. If you’re making a connection or have a round-trip fare, multiply.
• Passenger Facility Charge (PFC): Local airports charge up to $4.50 per takeoff or landing to fund their own improvements.

Taxes and fees, combined with operational costs like fuel, labor, maintenance, and airport fees, eat into ticket revenues.  

Airlines offset operational costs and reduce taxes by charging for optional services like checked baggage and in-flight meals. They often net only a few dollars per passenger!

Airlines create an impression of greed, when in reality, they struggle to offer low fares in a high-cost environment.

Wouldn’t we love it if every airline charged a flat fee—like they did in the good old days before federal excise taxes? We’d compare prices, look at schedules, and choose the best flight for our needs—simple! 

But we also wouldn’t know if we were paying extra for services we weren’t using—like checked bags we didn’t travel with, meals, etc.

Add-on fees make sense, and they save us money. But if we don’t understand why they make sense and how they benefit us, we’ll naturally conclude that advertised fares are “bait and switch.” We’ll feel ripped off when we’re told we’ll pay a low price and end up paying a higher one. 

And … Even if five items on a list add up to a lower price than the same items bundled into one, if we can’t compare them side-by-side, we see more items and feel like we’re paying more money.

The Untold Story:

Imagine if airlines communicated effectively about where our money goes and why additional fees make sense. 

What if they disclosed their slim profit margins, and how add-on fees help maintain affordable base fares? 

The airlines pretty much break even on standard airfares. They make most of their money on checked bags, seat upgrades, in-flight food, and last-minute bookings—much like car dealers make their money on service and book stores make their money on coffee and pastries.

Though the airlines’ add-on fees are annoying, they actually give us the choice to travel without checking bags and fly at their cost.

Imagine having a winning story and not sharing it at the expense of your customers’ loyalty and respect.

The problem with the airlines isn’t greed.

The problem is storytelling.