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Airline fees reach for the sky

Air travelers walk in a terminal of the Ronald Reagan National Airport August 30, 2013 in Arlington, Va.

American Airlines won the approval of a federal judge on its plan to exit bankruptcy, but the carrier still has to deal with the Justice Department’s objections to its proposed merger with US Airways.

However that shakes out, you can be certain those airlines -- along with all the others -- will continue to charge you fees for everything from checking a bag to scoring an aisle seat.

A report out this week says airlines made more than $27 billion on those and other so-called “ancillary fees” last year.

According to Henry Harteveldt, a travel industry analyst with the firm Hudson Crossing, all those extras aren’t pure profit, but it can get close.

“If you are paying to check your bag, that is going to have a profit margin generally of probably 50 percent or more,” he says.

The reason airlines have instituted so many fees is because most travelers only care about one thing: Getting the least-expensive flight.

“So, when we are buying our inexpensive discount tickets, we are at best break-even and more likely a money-loser for that airline,” Harteveldt says. “That’s why they’re pushing these optional products. It’s how they claw money back.”

For ultra low-cost carriers like Spirit Airlines and Allegiant Air, this is the business model.  It is bare bones, everything is optional. For other airlines, fees go to the bottom line, and they’ve changed how analysts like Robert Mann, of R.W. Mann & Company, evaluate an airline’s financial health.

“Simply looking at fares is not very meaningful anymore,” he says.

It used to be the ticket price was 96 to 98 percent of what you’d pay an airline, Mann says. These days, the ticket price is just about two-thirds of what a passenger will pay.

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.
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