Key insights
- Airlines are increasing baggage fees, potentially driven by higher jet fuel costs and a focus on affluent customers. This may incentivize consumers to apply for airline-branded credit cards. Reduced domestic coach capacity and prioritization of premium products could negatively impact budget travelers and signal a shift in airline strategy.
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It's not just tickets that may pinch travelers' budgets. It's baggage fees, too.
Airlines have incentives to adjust baggage fees, according to Michael Taylor, practice lead for travel intelligence at consumer insights firm JD Power. Payments for baggage may not be subject to the same taxes as tickets, he said, which means carriers may not have to pay comparable taxes on the revenue.
Several airlines have in recent weeks increased their checked-bag fees, many by about $10, as the conflict with Iran squeezed oil supply and put upward pressure on jet fuel prices, which according to market intelligence firm Argus are some 65% above pre-war levels.
Some industries are catering less to low and moderate-income households, who are having a harder time weathering cost-of-living increases. Airlines, hotels and some retailers have sharpened their focus on affluent Americans.
The fees may also bolster demand for airlines' co-branded credit cards, since many carriers' cards allow card holders and others to bring a bag for free. Airlines have grown reliant on revenue from co-branded credit cards, as they often lose money on the transportation of passengers. In response, the industry is paring back domestic coach capacity, and prioritizing pricier, premium products.
"One of the ways that you can use your own operations to get more people to sign up for that is to say: 'Hey, you can check your bags for free if you have our credit card,'" said Taylor.
Here's a look at airlines that have recently changed their baggage fees: