Why do airlines charge so much to check bags? This standard helps explain it

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(CNN) — Five of the six largest US airlines have increased checked baggage fees starting in January 2024.

For example, American Airlines. In 2023, the cost of checking a normal bag with an airline was US$30. As of March 2024, it costs US$40 at US airports, a whopping 33% increase.

As a business school professor who studies travel, I’m often asked why airlines alienate their customers with baggage fees instead of bundling all the charges. There are many reasons, but one important reason that is often overlooked is buried in the American tax code.

Tax loophole

Airlines pay 7.5% of the ticket price to the federal government in addition to other fees when flying within the country. Airlines don’t like the fee, which their association says raises the consumer price of a typical airfare by about a fifth.

However, the US The Code of Federal Regulations specifically excludes goods from the 7.5% transportation tax as long as “the charge is separable from the payment for transportation of the person and expressed in a specific amount.”

This means that if an airline charges you and a suitcase a total of US$300 for round-trip transport in the US, there is US$22.50 of tax owed on that. If the airline charges US$220 for the ticket and US$40 for the bag, the total cost is the same, but the airline only pays US$16.50 in taxes to the government. By splitting the cost of goods, the company saves US$6.

$6 may not seem like a lot, but it adds up. Last year, passengers took more than 800 million trips on major airlines. Even if only a small fraction of them check the goods, the sector will save a lot of money.

how many The government has been tracking baggage check-in revenue for decades. In 2002, airlines charged passengers a total of US$180 million for checking bags, equivalent to US$0.33 per passenger.

Today, as any traveler can attest, baggage fees are very high. Last year, airlines charged 40 times more for baggage than they did in 2002.

When complete data is available for 2023, total baggage fees will exceed US$7 billion, equivalent to about US$9 per domestic passenger on average. By spreading the cost of bags, airlines avoided paying nearly $500 million in taxes last year alone.

In the two decades since 2002, passengers have paid a combined $70 billion in baggage fees. This means that charging for bags separately saved airlines about $5 billion in taxes.

It seems clear to me that one of the drivers of the unbundling of baggage fees is tax savings due to the specificity of the law.

The US government does not impose a 7.5% tax on international flights beyond 362 kilometers from the country’s borders. Instead, there are fixed international departure and arrival rates. This is why major airlines charge between $35 and $40 for a bag if you fly domestically, but don’t charge any fees when you fly to Europe or Asia.

Do passengers get anything for that money?

A baggage handler at George Bush Intercontinental Airport in Houston, Texas. Credit: Brett Coomer/Houston Chronicle/Getty Images

This system raises an interesting question: Do baggage fees force airlines to be more careful with bags, as customers who pay more expect better service? To find out, I contacted the Bureau of Transportation Statistics, which has been tracking lost luggage for decades.

For several years, he calculated the number of reports of misplaced baggage per thousand passengers. Government data shows that mishandled bags topped 1,000 passengers in 2007, with about seven reports of lost or damaged luggage. That means you can expect your luggage to go on a different trip than if you were taking it every 140 flights or so. By 2018, that estimate had dropped to every 350 flights.

In 2019, the government changed the way it tracks mishandled bags, calculating figures based on the total number of checked bags instead of the total number of passengers. New data shows that about six bags per thousand checked are lost or damaged, representing less than 1% of bags checked. Unfortunately, the data shows no improvement from 2019.

Is there anything you can do about increasing baggage fees? Complaining to politicians probably won’t help. In 2010, two senators tried to ban baggage fees, and their bill went nowhere.

Since congressional action has failed, there’s an easy way to avoid increasing baggage fees: travel lights and no bag checks. Not having all your luggage when you travel can seem difficult, but it can be the best option due to increased baggage fees.

— Jay L. Zagorski is an associate professor of markets, public policy and law at Boston University.