Hope for Lost Luggage: Baggage Fee Refunds

by Susan J. Aluise | April 22, 2011 10:41 am

With a growing number of travelers feeling nickel-and-dimed to death by airline fees, federal regulators are flying to the rescue to save – their bags.  The Department of Transportation plans a new rule that would force U.S. airlines to refund baggage fees if luggage is lost or “significantly” delayed.

What “significantly” means is not yet clear, but some early comments in the process have suggested it could be a delay of as little as two hours. In its 2011 Baggage Report released earlier this month, global airline data provider SITA found that an average of 3.57 of each 1,000 bags handled were lost or delayed — that’s about half the number reported in 2007.

Those numbers are not equally represented across the industry, however.  DOT’s latest reports for February show that major carriers were far more likely to have improved their mishandled baggage performance over last year.  Delta Air Lines (NYSE:DAL[1]), United Continental (NYSE:UAL[2]), US Airways (NYSE:LLC[3]) and JetBlue (Nasdaq:JBLU[4]) all showed improvements, while baggage problems inched higher at American (NYSE:AMR[5]) and Southwest (NYSE:LUV[6]). 

Still, the biggest challenges were likely to be found with regional carriers, including those that operate feeder service for major airlines. For example, American Eagle’s lost or mishandled baggage rates increased from 8.40 bags in February 2010 to 9.33 bags this year.

But with most U.S. airlines mishandling fewer bags — and rates falling to three-year lows across all domestic flights — why add a requirement that will boost airlines’ costs?  By proposing the new rule, DOT is tapping into a tidal wave of passenger discontent. 

Recent consumer surveys show that more passengers generally feel taken advantage of [7]by their airlines these days.  And they’re chafing about baggage and other add-ons in particular. For regulators, that’s as good a reason as any to run to the rescue.

Predictably, airlines are howling with protest at the proposal, which potentially could put a dent in the $3.3 billion a year the industry racks up in baggage fees. Delta, United, American and US Air each charge $25 for the first bag and $35 for the second, according to Airfarewatchdog.com.  Southwest’s first two bags fly free. 

The fees add up fast for the third bag and overweight or oversized luggage.  American and United charge $100 extra for the third bag, Delta and US Air charge $125, Southwest charges $50.

Bottom Line: Expect the constant tension between airline fees and regulators’ passenger-rights campaign to continue on throughout the year. Proposals like this one would be popular with passengers, but they also would put additional pressure on carriers who already face stress from fuel price volatility. With industry fuel costs already expected to rise by as much as $3 billion this year, airlines can ill afford to bear additional operating costs – regardless of whether those costs come from improving baggage tracking or giving back the money.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.

 

Endnotes:
  1. DAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DAL
  2. UAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=UAL
  3. LLC: http://studio-5.financialcontent.com/investplace/quote?Symbol=LLC
  4. JBLU: http://studio-5.financialcontent.com/investplace/quote?Symbol=JBLU
  5. AMR: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMR
  6. LUV: http://studio-5.financialcontent.com/investplace/quote?Symbol=LUV
  7. feel taken advantage of : http://investorplace.com/35693/5-facts-about-angry-airline-passengers/

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