This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Note to Congress: You Can Learn From Bag Fees

WASHINGTON ( TheStreet) -- Bag fees are unpopular and anti-airline hysteria consumes our country, so it is not surprising that some in Congress want to force airlines to stop charging fees to check a bag.

This is the wrong approach. Bag fees represent a learning opportunity.

In the past few years, the airline industry, which has lost money since the Wright Brothers first flew, has sought to create a profitable business model. It has done this by reducing capacity and adding fees -- primarily bag fees. A plus is that bag fees are paid only by people who use the service.

According to the Bureau of Transportation Statistics, the top three airlines in terms of bag fee revenue in 2011 were Delta (DAL - Get Report) with $864 million, American (AAMRQ.PK) with $593 million and US Airways (LCC) with $506 million. During the same year, Delta's net income was $854 million while US Airways made $111 million and American, which declared bankruptcy in November, lost $2 billion.

While the airlines believe the BTS numbers might be a bit on the high side, the fact remains that eliminating the revenue from bag fees could push at least two airlines into or close to a loss position.

Speaking of a loss position, isn't that what the U.S. government is in? Yet now Congress wants to bring its financial model to the airline industry. Perhaps it should be the other way around. Since 2003, airlines have moved to reduce costs and raise revenue, a comprehensive approach that seems to be working.

Cost reduction occurred in bankruptcy court, visited between 2003 and 2011 by every major network carrier. It wasn't popular or pretty. Thousands of workers were laid off, while wages, pensions and health care benefits were reduced. Also, trying to get it right, US Airways visited twice, United (UAL - Get Report) sat in court for three years and American, trying to be a moral company in an immoral world, resisted for too long. Now, American may be forced to merge with a smaller, less prestigious airline.

This is not to say that the U.S. ought to declare bankruptcy, despite the attractiveness of vesting decision-making authority in a single, bankruptcy court judge committed to a solution that is viable for all the parties. However, cost reduction has been a big part of the airline industry's momentum to a better future. While the industry remains overly dependent on oil prices, Delta is even trying to address this seemingly intractable problem by purchasing an oil refinery. Its new model provides sufficient capital that it can try something different.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
LCC $0.00 0.00%
DAL $41.58 -3.10%
SAVE $42.20 -2.20%
UAL $45.64 -3.20%
AAPL $94.02 -1.20%


Chart of I:DJI
DOW 17,642.29 -108.62 -0.61%
S&P 500 2,047.49 -15.88 -0.77%
NASDAQ 4,717.5850 -45.6390 -0.96%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs