CHARLOTTE, N.C. -- The move by AMR ( AMR) unit American Airlines to charge passengers $15 for their first checked bag has triggered an unusual split in the airline industry. Typically, airlines act in concert when imposing new charges or higher ticket prices, fearing the competitive impact if one carrier charges more than another. But today, three legacy carriers and low-cost carrier Spirit Airlines impose a first-bag fee, while the three remaining legacy carriers and most low-fare carriers have not. One reason for the split involves the question of whether the fee actually boosts revenue without adding cost. Aviation consultant Robert Mann says some airlines also worry the fee may trigger the unintended consequence of "turning flight attendants into baggage police" and causing delays as more passengers carry items on board and excess luggage must be moved from the cabin to baggage holds. The fee can "change behavior, which is what typically happens in the airline business," says Mike Flores, president of the US Airways ( LCC) chapter of the Association of Flight Attendants. US Airways has also imposed a $15 first-bag charge. "It may mean that passengers bring an even bigger rollerboard and a personal item onto the plane, and there will not be enough room, and policing it will take time," Flores says. "US Airways thinks fewer people will book away if we charge a $15 fee for the first bag than if we raise our fare by $15," he adds. No doubt American was concerned as its June 15 implementation date approached and few competitors followed suit. American announced the charge May 21, triggering howls of protest from consumers. Initially, the only response was by Southwest ( LUV), which quickly pledged not to impose a similar fee.
The tide turned on June 12, when United ( UAUA) said it would impose the fee effective for tickets purchased June 13, while US Airways announced it would impose effective for tickets purchased July 9. "We've certainly taken a little bit of flack about the $15 for the first bag," American CEO Gerard Arpey said Wednesday, at a Merrill Lynch conference. He said most people do not realize that shipping a typical bag from New York to Dallas with an overnight carrier would cost about $250. "If that bears any resemblance to their cost to provide that service, and our one-way ticket price is about $200 and that first bag is free, that will just demonstrate how out of whack this is," Arpey said. About half of American's passengers check a bag, but international and premium-level passengers are exempted from the fee, so fewer than 25% of domestic passengers will actually pay it, spokesman Tim Smith says. The impact is also muted because many summer travelers bought tickets before June 15, he says. Still, with the industry so clearly split, it remains questionable whether the charge will stick. "Some of the carriers may have decided this is the one thing that drives customers over the edge, towards choosing someone else," Mann says. In particular, Delta ( DAL) and Northwest ( NWA) may be reluctant to implement an unpopular charge at a time when they are seeking regulatory approval for a merger. "They don't want to swat the hornets' nest," Mann said.
Continental ( CAL) continues to review the topic, CEO Larry Kellner told the Merrill Lynch conference. He said the carrier would consider the fee's impact on passenger behavior, as well as whether it forces one group of passengers to subsidize another. "My general view is if most people need a product, how do we put that in an all-inclusive fare?" he asked. Additionally, AirTran CEO Bob Fornaro said at the conference his airline has not instituted the fee because it would be "pretty uncomfortable" competing in Atlanta with Delta, which doesn't charge the fee. Kevin Mitchell, chairman of the Business Travel Coalition, says legacy airlines must match American as they struggle to keep up with fuel costs. Some "have already made the calculation that consumer backlash, while important, is not as important as trying to survive," Mitchell says. At $130 a barrel, airlines will pay $28 billion more for fuel than they did in 2007, when they earned less than $4 billion, Mitchell notes. "Think about the gap they have to make up," he says.