It was 2008. The world economy had slumped into recession and jet fuel prices were rapidly rising. American Airlines held its annual meeting in Dallas and made headlines with a big announcement.
Then-CEO Gerard Arpey announced that American Airlines would begin to charge $15 for the first checked bag on domestic flights.
Our company and industry simply cannot afford to sit by hoping for industry and market conditions to improve.
The fee became effective June 15, 2008. Only weeks earlier, American (and other legacy airlines) began charging $25 for a second checked bag. For decades prior, each passenger had been entitled two checked bags on a complimentary basis.
At the time, analysts predicted other carriers would take a “wait and see” approach. Many consumers expressed outrage over the change in long-established status quo. But American Airlines did not back down.
Have you ever thought about what might have happened if American had never made the move? What if Delta and United (and Continental, Northwest, and US Airways) had declined to match? What if the consumers pushed back hard or Congress decided to prohibit a first checked baggage fee? Perhaps American would have lost more business and more money. But that’s not what happened.
Last week I wrote about American Airlines collecting $1.22 billion in baggage fees in 2018. One decade later, what an accomplishment for AA. Not only have airlines raked into billions in baggage fees over the last decade, but they have effectively re-trained the public no longer to view free checked bags as an entitlement. It is nothing short of a revolution in air travel.
And of course these fees are not taxed like airline tickets are (with a 7.5% excise tax). Thus, American Airlines has found a way to indirectly raise ticket prices at a tremendous tax advantage.
In one sense, even a decade later no one likes checked baggage fees. And yet I think it is a safe argument to say we accept them. American’s billion dollar gamble worked out quite nicely.