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Airline Fees Account for Most Airline Profits

Stocks in this article: DAL LCC

ATLANTA ( TheStreet) -- U.S. airlines collected about $4.3 billion in fee revenue in the first three quarters of 2010, an amount roughly equivalent to the industry's anticipated total profits for the year.

With the fourth quarter historically one in which airlines loses money, it is possible to include that nearly every penny of the industry's profits will result from fee income. U.S. airlines are expected to earn about $4 billion in 2010 after losing $23.7 billion the previous year.

Speaking at an investor conference last month, US Airways (LCC) CFO Derek Kerr said the airline would have about $500 million in 2010 fee revenue , including $475 million from baggage fees. That is roughly equivalent to US Airways' expected 2010 profit.

The Bureau of Transportation Statistics on Monday reported fee revenue for the first three quarters. Among the individual carriers, Delta (DAL), the largest airline, had the highest fee revenue, about $1.3 billion. American (AMR) had about $785 million. Combined, United (UAL) and Continental had about $922 million.

Avondale Partners analyst Bob McAdoo said data shows that per-passenger fee revenue has been declining since reaching a peak in February. "It's clear that people are changing their patterns of behavior," McAdoo said. "They are packing lighter and carrying fewer bags."

Meanwhile, on Monday, Continental introduced a new fee called FareLock, which enables customers to hold a reservation and lock in the ticket price for 72 hours or for seven days without committing to actually buying the ticket. The fees begin at $5 for a 72-hour hold and $9 for a seven-day hold.

"FareLock is an innovative option for customers who need extra time to plan their travel before purchasing a ticket," said Chris Amenechi, managing director of merchandising, in a prepared statement. Continental will continue to allow changes or a refund, without a fee, within 24 hours of booking.

Aviation consultant Robert Mann said the new fee reflects that airlines seek to "find something customers say they want, (something) you categorically won't give them, and give it to them for a fee.

"Now the question is, why would anyone buy it?" he said.

-- Written by Ted Reed in Charlotte, N.C. .

>To contact the writer of this article, click here: Ted Reed

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