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Home » American Airlines » AA’s Billion Dollar Gamble
American Airlines

AA’s Billion Dollar Gamble

Matthew Klint Posted onMay 13, 2019November 14, 2023 9 Comments

a woman standing at an airport

It was 2008. The world economy had slumped into recession and jet fuel prices were rapidly rising. American Airlines held its annual meeting in Dallas and made headlines with a big announcement.

Then-CEO Gerard Arpey announced that American Airlines would begin to charge $15 for the first checked bag on domestic flights.

Our company and industry simply cannot afford to sit by hoping for industry and market conditions to improve.

The fee became effective June 15, 2008. Only weeks earlier, American (and other legacy airlines) began charging $25 for a second checked bag. For decades prior, each passenger had been entitled two checked bags on a complimentary basis.

At the time, analysts predicted other carriers would take a “wait and see” approach. Many consumers expressed outrage over the change in long-established status quo. But American Airlines did not back down.

Have you ever thought about what might have happened if American had never made the move? What if Delta and United (and Continental, Northwest, and US Airways) had declined to match? What if the consumers pushed back hard or Congress decided to prohibit a first checked baggage fee? Perhaps American would have lost more business and more money. But that’s not what happened.

Last week I wrote about American Airlines collecting $1.22 billion in baggage fees in 2018. One decade later, what an accomplishment for AA. Not only have airlines raked into billions in baggage fees over the last decade, but they have effectively re-trained the public no longer to view free checked bags as an entitlement. It is nothing short of a revolution in air travel.

And of course these fees are not taxed like airline tickets are (with a 7.5% excise tax). Thus, American Airlines has found a way to indirectly raise ticket prices at a tremendous tax advantage.

CONCLUSION

In one sense, even a decade later no one likes checked baggage fees. And yet I think it is a safe argument to say we accept them. American’s billion dollar gamble worked out quite nicely.

> Read More: Airlines Made Billions In Baggage Fees Last Year (Here’s A Breakdown By Carrier)

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About Author

Matthew Klint

Matthew is an avid traveler who calls Los Angeles home. Each year he travels more than 200,000 miles by air and has visited more than 135 countries. Working both in the aviation industry and as a travel consultant, Matthew has been featured in major media outlets around the world and uses his Live and Let's Fly blog to share the latest news in the airline industry, commentary on frequent flyer programs, and detailed reports of his worldwide travel.

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9 Comments

  1. United 752 Reply
    May 13, 2019 at 11:55 am

    For someone like myself, I think it’s safe to say that checked bags are a hinderance, and very rare is the situation in which I can’t fit all that I need in a carry-on. Additionally carrying all of my stuff with me ensures that it will not be lost and that I can retrieve items from my suitcase should I need to.

    • P Reply
      May 13, 2019 at 11:58 am

      Thanks for making boarding slower so…

  2. Arthur Reply
    May 13, 2019 at 12:09 pm

    And a free checked bags benefit is a driver of a lot of airline credit cards where they also make a lot of money.

    • Kyle Stewart Reply
      May 13, 2019 at 1:24 pm

      Good point. The indirect benefit drives more business than can be directly measured.

  3. Mike Reply
    May 13, 2019 at 12:39 pm

    I believe AA also had the first frequent flyer program. Another example of AA taking a forward position and waiting for the others to respond. Oligopoly at its finest.

    IMO, all the airlines are leaving money on the table by not charging a fee for carry-on bags.

    • James Reply
      May 13, 2019 at 11:23 pm

      You already know many carriers do. Have you ever looked at any of the domestic budget carriers?

  4. Steve S Reply
    May 13, 2019 at 3:06 pm

    It won’t happen for maybe 8-10 more years, but I can’t wait to hit United Million Mile status and never worry about checked bag fees for the rest of my life.

  5. LAXJeff Reply
    May 14, 2019 at 12:12 pm

    This change has made boarding and deplaning an absolute cluster****. If I could request American and the other carriers do anything, it would be to make every passenger place their carry on bags into the sizer and if it doesn’t fit it needs to be gate checked. Far too many people bring bags that are too large and those take up all the overhead space. Its a sh!tshow to watch people with their full size bags every flight. I actually wish they charged more for a carry on bag than they did for a checked bag. It would speed things up greatlyl. Rant over.

  6. Pingback: Havayolları, Bagaj Ücretinden Milyarlarca Dolar Kazanıyor | Havayolu 101

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