You’re scrolling on your phone or laptop for hours, hunting for a cheap airfare ticket. Finally, you find a deal and are ready to book, until you realize you forgot to factor in costs for carry-ons, checked bags, seat selection, priority boarding and more. Suddenly, that once cheap ticket doesn’t seem like such a deal anymore. The scenario of cheap tickets not being cheap has become all too common as airlines have shifted to an “unbundling” model over the past two decades. In 2006, Spirit Airlines first debuted an unbundling business model, which lowered ticket prices but charged extra for nearly every additional service. Later, in 2017, legacy airlines introduced their version of an unbundling program, known as Basic Economy, to compete with ultra-low-carriers.In 2023, the Senate Permanent Subcommittee on Investigation (PSI) launched an inquiry to examine the practices surrounding these additional services known as ancillary fees. The subcommittee “requested information from three legacy airlines — American Airlines, Delta Air Lines and United Airlines — as well as two ultra-low-cost carriers, Frontier Airlines and Spirit Airlines, both of which helped pioneer many of the fee structures now used throughout the industry.” The report did not include data from other major U.S. airlines like Southwest and JetBlue. The information provided to the subcommittee by each of the five airlines enabled the subcommittee to learn how ancillary fees and revenue changed over time and to compare the performance of the different airlines. The new November 2024 report found that seat selection and baggage fees alone have generated billions in revenue for these companies. Additionally, the report concludes that the unbundling model “has not lowered the cost of flying for consumers, who now face additional charges to fly with carry-on or checked bags.” In 2023, the top 10 global airlines that charge ancillary fees, including five American airlines — American, Delta, United, Spirit and Southwest—collected a total of $54.1 billion in ancillary revenue, according to the report. The PSI report highlights that the 7.5% federal excise transportation tax applies to the airfare base, but not ancillary fees. So things like baggage and seat selection are not subject to the federal tax. A 2018 RAND Corporation study of airport infrastructure financing commissioned by the Federal Aviation Administration found the exemption of baggage fees from the transportation tax deprived the Trust Fund of $367 million alone. The subcommittee also found that as competition in the airline industry decreased, ancillary fees surged, burdening customers.Viewing in the app? Click here for the best interactive experience.Less competition means more junk fees for consumersTRB’s Cooperative Research Programs found between 2001 and 2016, the number of major U.S. airlines dropped from 12 to five. Most of the decline and financial difficulties took place following the Great Recession in 2008, resulting in mergers and acquisitions. In 2013, when American and US Airways proposed a merger, the Department of Justice noted its concern on airline consolidation. The department noted, “industry consolidation has left fewer, more-similar airlines, making it easier for the remaining airlines to raise prices, impose new or higher baggage and other ancillary fees, and reduce capacity and service.”Now, approximately 68% of the U.S. air travel market is controlled by four carriers: American, Delta, United and Southwest airlines, according to the Bureau of Transportation Statistics. Prior to 2006, additional services like baggage were included in the price of airfare until Spirit introduced its new model in which it would offer cheaper airfare tickets by unbundling other services like carry-ons, checked bags, seat selections and more. In 2012, Delta introduced “Basic Economy” fares only in routes where it competed with Spirit. Basic Economy offered customers more affordable fares with more spartan services, forgoing the option to change their reservations, among other things. Eventually, in 2017, Delta, America and United began offering their version of unbundled low-cost airfare to consumers. The consolidation of the airline industry hasn’t just reduced the choices consumers have when flying. The Senate report states, “airline industry consolidation has left consumers with fewer choices in air travel and led to a worse customer experience. For example, with one notable exception , it is difficult or impossible to avoid flying an airline in the U.S. that does not charge for a first checked bag when purchasing the lowest-available airfare.” The report also notes any time any of the three legacy carriers decided to raise the price of their checked bag fees, others followed in lockstep. For instance, in September 2018, American, Delta and United each raised their first checked bag fee on domestic flights from $25 to $30. This year, all three airlines raised their first checked bag fee from $30 to $35 for domestic flights. Frontier and Spirit, on the other hand, use “dynamic” pricing to set their fees for carry-on bags and checked bags. Both airlines use Navitaire Dynamic Pricing, a third-party service, to set their prices for seats and bag fees. As noted in the report, “Navitaire Dynamic Pricing incorporates machine learning models into pricing algorithms designed to optimize revenue results.” Spirit and Frontier provided the subcommittee with their first checked bag price ranges for 2023. Last year, Spirit’s fees for a first checked bag ranged between $10 and $89.21. The same year, Frontier’s first checked bag fee varied between $0 and $138.Airlines are making more money from seat fees than beforeSeat fees were first implemented by Northwest Airlines in 2006. Since then, every major U.S. airline has adopted some form of seat selection charges, according to IdeaWorksCompany, an aviation consulting firm. American, Delta, United, Frontier and Spirit all charge for advance seat selection on a flight if a customer purchases the cheapest available economy fare and does not hold status with the airline’s loyalty program. Like baggage fees, airlines like Frontier and Spirit, also use their algorithm to determine their dynamic prices for seats. Consumers can’t get a seat selection price without inputting their personal information to curate a specific price determined by the algorithm.The subcommittee calculated the total seat fee revenue provided by each of the five airlines and found between 2018 and 2023, these five airlines have collectively generated $12.4 billion in revenue from the fees. PSI found in ancillary categories, seat fee revenue is now the second highest revenue generator, behind baggage fees. For the first time since at least 2018, United collected more revenue from seat fees ($1.3 billion) than checked bag fees ($1.2 billion) according to the report. As ancillary fees continue to rise, many consumers are turning to co-branded airline credit cards, as a way to evade seat selection and baggage fees. Despite consumers having to make more choices regarding credit cards, baggage upgrades, and seat selections, the consolidation of airlines and the consequent rise of junk fees have actually left them with less choice than before.PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiPiFmdW5jdGlvbigpeyJ1c2Ugc3RyaWN0Ijt3aW5kb3cuYWRkRXZlbnRMaXN0ZW5lcigibWVzc2FnZSIsKGZ1bmN0aW9uKGUpe2lmKHZvaWQgMCE9PWUuZGF0YVsiZGF0YXdyYXBwZXItaGVpZ2h0Il0pe3ZhciB0PWRvY3VtZW50LnF1ZXJ5U2VsZWN0b3JBbGwoImlmcmFtZSIpO2Zvcih2YXIgYSBpbiBlLmRhdGFbImRhdGF3cmFwcGVyLWhlaWdodCJdKWZvcih2YXIgcj0wO3I8dC5sZW5ndGg7cisrKXtpZih0W3JdLmNvbnRlbnRXaW5kb3c9PT1lLnNvdXJjZSl0W3JdLnN0eWxlLmhlaWdodD1lLmRhdGFbImRhdGF3cmFwcGVyLWhlaWdodCJdW2FdKyJweCJ9fX0pKX0oKTs8L3NjcmlwdD4=
You’re scrolling on your phone or laptop for hours, hunting for a cheap airfare ticket. Finally, you find a deal and are ready to book, until you realize you forgot to factor in costs for carry-ons, checked bags, seat selection, priority boarding and more. Suddenly, that once cheap ticket doesn’t seem like such a deal anymore.
The scenario of cheap tickets not being cheap has become all too common as airlines have shifted to an “unbundling” model over the past two decades. In 2006, Spirit Airlines first debuted an unbundling business model, which lowered ticket prices but charged extra for nearly every additional service. Later, in 2017, legacy airlines introduced their version of an unbundling program, known as Basic Economy, to compete with ultra-low-carriers.
In 2023, the Senate Permanent Subcommittee on Investigation (PSI) launched an inquiry to examine the practices surrounding these additional services known as ancillary fees. The subcommittee “requested information from three legacy airlines — American Airlines, Delta Air Lines and United Airlines — as well as two ultra-low-cost carriers, Frontier Airlines and Spirit Airlines, both of which helped pioneer many of the fee structures now used throughout the industry.”
The report did not include data from other major U.S. airlines like Southwest and JetBlue.
The information provided to the subcommittee by each of the five airlines enabled the subcommittee to learn how ancillary fees and revenue changed over time and to compare the performance of the different airlines.
The new November 2024 report found that seat selection and baggage fees alone have generated billions in revenue for these companies. Additionally, the report concludes that the unbundling model “has not lowered the cost of flying for consumers, who now face additional charges to fly with carry-on or checked bags.”
In 2023, the top 10 global airlines that charge ancillary fees, including five American airlines — American, Delta, United, Spirit and Southwest—collected a total of $54.1 billion in ancillary revenue, according to the report.
The PSI report highlights that the 7.5% federal excise transportation tax applies to the airfare base, but not ancillary fees. So things like baggage and seat selection are not subject to the federal tax.
A 2018 RAND Corporation study of airport infrastructure financing commissioned by the Federal Aviation Administration found the exemption of baggage fees from the transportation tax deprived the Trust Fund of $367 million alone.
The subcommittee also found that as competition in the airline industry decreased, ancillary fees surged, burdening customers.
Viewing in the app? Click here for the best interactive experience.
Less competition means more junk fees for consumers
TRB’s Cooperative Research Programs found between 2001 and 2016, the number of major U.S. airlines dropped from 12 to five. Most of the decline and financial difficulties took place following the Great Recession in 2008, resulting in mergers and acquisitions.
In 2013, when American and US Airways proposed a merger, the Department of Justice noted its concern on airline consolidation. The department noted, “industry consolidation has left fewer, more-similar airlines, making it easier for the remaining airlines to raise prices, impose new or higher baggage and other ancillary fees, and reduce capacity and service.”
Now, approximately 68% of the U.S. air travel market is controlled by four carriers: American, Delta, United and Southwest airlines, according to the Bureau of Transportation Statistics.
Prior to 2006, additional services like baggage were included in the price of airfare until Spirit introduced its new model in which it would offer cheaper airfare tickets by unbundling other services like carry-ons, checked bags, seat selections and more.
In 2012, Delta introduced “Basic Economy” fares only in routes where it competed with Spirit. Basic Economy offered customers more affordable fares with more spartan services, forgoing the option to change their reservations, among other things. Eventually, in 2017, Delta, America and United began offering their version of unbundled low-cost airfare to consumers.
The consolidation of the airline industry hasn’t just reduced the choices consumers have when flying. The Senate report states, “airline industry consolidation has left consumers with fewer choices in air travel and led to a worse customer experience. For example, with one notable exception [Southwest], it is difficult or impossible to avoid flying an airline in the U.S. that does not charge for a first checked bag when purchasing the lowest-available airfare.”
The report also notes any time any of the three legacy carriers decided to raise the price of their checked bag fees, others followed in lockstep.
For instance, in September 2018, American, Delta and United each raised their first checked bag fee on domestic flights from $25 to $30. This year, all three airlines raised their first checked bag fee from $30 to $35 for domestic flights.
Frontier and Spirit, on the other hand, use “dynamic” pricing to set their fees for carry-on bags and checked bags. Both airlines use Navitaire Dynamic Pricing, a third-party service, to set their prices for seats and bag fees. As noted in the report, “Navitaire Dynamic Pricing incorporates machine learning models into pricing algorithms designed to optimize revenue results.”
Spirit and Frontier provided the subcommittee with their first checked bag price ranges for 2023. Last year, Spirit’s fees for a first checked bag ranged between $10 and $89.21. The same year, Frontier’s first checked bag fee varied between $0 and $138.
Airlines are making more money from seat fees than before
Seat fees were first implemented by Northwest Airlines in 2006. Since then, every major U.S. airline has adopted some form of seat selection charges, according to IdeaWorksCompany, an aviation consulting firm.
American, Delta, United, Frontier and Spirit all charge for advance seat selection on a flight if a customer purchases the cheapest available economy fare and does not hold status with the airline’s loyalty program.
Like baggage fees, airlines like Frontier and Spirit, also use their algorithm to determine their dynamic prices for seats. Consumers can’t get a seat selection price without inputting their personal information to curate a specific price determined by the algorithm.
The subcommittee calculated the total seat fee revenue provided by each of the five airlines and found between 2018 and 2023, these five airlines have collectively generated $12.4 billion in revenue from the fees.
PSI found in ancillary categories, seat fee revenue is now the second highest revenue generator, behind baggage fees. For the first time since at least 2018, United collected more revenue from seat fees ($1.3 billion) than checked bag fees ($1.2 billion) according to the report.
As ancillary fees continue to rise, many consumers are turning to co-branded airline credit cards, as a way to evade seat selection and baggage fees.
Despite consumers having to make more choices regarding credit cards, baggage upgrades, and seat selections, the consolidation of airlines and the consequent rise of junk fees have actually left them with less choice than before.
