Delta, US Airways Win the Fee Game

ATLANTA (TheStreet) -- Delta(DAL) and US Airways(LCC) were disproportionate winners as the airline industry divided $5.7 billion in 2010 fee revenue, illustrated by new data from the U.S. Transportation Department's Bureau of Transportation Statistics.

That's because Delta and US Airways carry relatively large shares of domestic passengers. In most cases, international passengers are exempt from bag fees.

Delta had $952 million in baggage fees, tops in the industry, which had bag fee revenue of $3.4 billion. Delta's total far exceeded the combined totals of United(UAL) and Continental, now combined into the world's largest airline. They derived $665 million from bag fee revenue.

US Airways, the sixth largest airline in 2010, had bag fee revenue of $514 million, the third highest total. Southwest(LUV), the fourth largest airline, does not charge fees for the first and second bags.

As for the industry's cancellation fee revenue of $2.3 billion, Delta led with $699 million, while US Airways was fourth with $253 million. The combined total for United and Continental was $558 million.

Fees are a good revenue source for airlines because the cost of providing the service does not fluctuate wildly along with fuel prices.

Also, the fee revenue is not subject to the same high level of taxation as ticket revenue.

Hunter Keay, airline analyst for Wolfe Trahan, has buy recommendations on both Delta and US Airways. "Fee revenue is a huge portion" of the two carriers' attractiveness, he said.

It is well-known within the airline industry that media hysteria accompanies any discussion of bag fees. It is also known that industry made about $2.3 billion in 2010, a gain enabled largely by fee revenue. In 2009, the industry lost $3.2 billion.

It is important to remember, Keay said, that the airline industry has "an inability to control its product" and few places to look for revenue, because it is so heavily reliant on governmental infrastructure and so heavily taxed. "The industry is said to be deregulated, but it is totally regulated," he said.

Although "consumers grumble about bag fees, the concept is one they support," Keay said. "Customers like the idea of paying for the services they use. That's the way to think about it, rather than as another tax on them."

In early afternoon trading Wednesday, Delta shares were up 29 cents to $9.55 while US Airways shares were up 11 cents to $8.32.

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

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