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Why do airlines charge so much for checked bags? This obscure rule helps explain why

<p><em><a href="https://theconversation.com/profiles/jay-l-zagorsky-152952">Jay L. Zagorsky</a>, <a href="https://theconversation.com/institutions/boston-university-898">Boston University</a></em></p> <p>Five out of the six <a href="https://www.oag.com/blog/biggest-airlines-in-the-us">biggest U.S. airlines</a> have <a href="https://www.cnbc.com/2024/03/05/delta-is-the-latest-airline-to-raise-its-checked-bag-fee.html">raised their checked bag fees</a> since January 2024.</p> <p>Take American Airlines. In 2023, it cost US$30 to check a standard bag in with the airline; <a href="https://www.usatoday.com/story/travel/airline-news/2024/02/20/american-airlines-bag-fees-mileage-earning/72669245007/">today, as of March 2024, it costs $40</a> at a U.S. airport – a whopping 33% increase.</p> <p>As a <a href="https://www.bu.edu/questrom/">business school</a> <a href="https://www.bu.edu/questrom/profile/jay-zagorsky/">professor who studies travel</a>, I’m often asked why airlines alienate their customers with baggage fees instead of bundling all charges together. <a href="https://www.vox.com/2015/4/16/8431465/airlines-carry-on-bags">There are</a> <a href="https://www.usatoday.com/story/travel/columnist/2023/06/21/bag-fees-will-stay-a-while-cruising-altitude/70338849007/">many reasons</a>, but an important, often overlooked cause is buried in the U.S. tax code.</p> <h2>A tax-law loophole</h2> <p>Airlines pay the federal government <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-49/subpart-D">7.5% of the ticket price</a> when <a href="https://www.pwc.com/us/en/services/tax/library/aircraft-club-nov-2023-air-transport-excise-tax-rates-for-2024.html">flying people domestically, alongside other fees</a>. The airlines dislike these charges, with their <a href="https://www.airlines.org/dataset/government-imposed-taxes-on-air-transportation/">trade association arguing</a> that they boost the cost to the consumer of a typical air ticket by around one-fifth.</p> <p>However, the U.S. Code of Federal Regulations <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-49/subpart-D/section-49.4261-8">specifically excludes baggage</a> from the 7.5% transportation tax as long as “the charge is separable from the payment for the transportation of a person and is shown in the exact amount.”</p> <p>This means if an airline charges a combined $300 to fly you and a bag round-trip within the U.S., it owes $22.50 in tax. If the airline charges $220 to fly you plus separately charges $40 each way for the bag, then your total cost is the same — but the airline only owes the government $16.50 in taxes. Splitting out baggage charges saves the airline $6.</p> <p>Now $6 might not seem like much, but it can add up. Last year, passengers took <a href="https://www.transtats.bts.gov/Data_Elements.aspx?Data=1">more than 800 million trips on major airlines</a>. Even if only a fraction of them check their bags, that means large savings for the industry.</p> <p>How large? The government has <a href="https://www.bts.dot.gov/topics/airlines-and-airports/baggage-fees-airline-2023">tracked revenue from bag fees</a> for decades. In 2002, airlines charged passengers a total of $180 million to check bags, which worked out to around 33 cents per passenger.</p> <p>Today, as any flyer can attest, bag fees are a lot higher. Airlines collected over 40 times more money in bag fees last year than they did in 2002.</p> <p>When the full data is in for 2023, <a href="https://www.bts.dot.gov/baggage-fees">total bag fees</a> will likely top $7 billion, which is about $9 for the average domestic passenger. <a href="https://viewfromthewing.com/the-real-reason-airlines-charge-checked-bag-fees-and-its-not-what-you-think">By splitting out the cost of bags</a>, airlines avoided paying about half a billion dollars in taxes just last year.</p> <p>In the two decades since 2002, flyers paid a total of about $70 billion in bag fees. This means separately charging for bags saved airlines about $5 billion in taxes.</p> <p><iframe id="88MYD" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/88MYD/2/" width="100%" height="400px" frameborder="0"></iframe></p> <p>It seems clear to me that tax savings are one driver of the unbundling of baggage fees because of a quirk in the law.</p> <p>The U.S. government doesn’t apply the 7.5% tax to <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-49/subpart-D/section-49.4261-3">international flights that go more than 225 miles</a> beyond the nation’s borders. Instead, there are fixed <a href="https://www.airlines.org/dataset/government-imposed-taxes-on-air-transportation">international departure and arrival taxes</a>. This is why major airlines charge $35 to $40 <a href="https://www.aa.com/i18n/travel-info/baggage/checked-baggage-policy.jsp">for bags if you’re flying domestically</a>, but don’t charge a bag fee when you’re flying to Europe or Asia.</p> <h2>Do travelers get anything for that money?</h2> <p>This system raises an interesting question: Do baggage fees force airlines to be more careful with bags, since customers who pay more expect better service? To find out, I checked with the Bureau of Transportation Statistics, which has been <a href="https://www.bts.gov/content/mishandled-baggage-reports-filed-passengers-largest-us-air-carriersa">tracking lost luggage for decades</a>.</p> <p>For many years, it calculated the number of mishandled-baggage reports per thousand airline passengers. The government’s data showed mishandled bags peaked in 2007 with about seven reports of lost or damaged luggage for every thousand passengers. That means you could expect your luggage to go on a different trip than the one you are taking about once every 140 or so flights. By 2018, that estimate had fallen to once every 350 flights.</p> <p>In 2019, the government <a href="https://www.bts.gov/topics/airlines-and-airports/number-30a-technical-directive-mishandled-baggage-amended-effective-jan">changed how it tracks</a> mishandled bags, calculating figures based on the total number of bags checked, rather than the total number of passengers. The new data show about six bags per thousand checked get lost or damaged, which is less than 1% of checked bags. Unfortunately, the data doesn’t show improvement since 2019.</p> <p>Is there anything that you can do about higher bag fees? Complaining to politicians probably won’t help. In 2010, two senators <a href="https://www.nj.com/business/2010/04/us_senators_present_bill_to_ba.html">tried to ban bag fees</a>, and their bill went nowhere.</p> <p>Given that congressional action failed, there’s a simple way to avoid higher bag fees: <a href="https://www.cnn.com/travel/article/packing-expert-travel-world-handbag/index.html">travel light</a> and <a href="https://www.nytimes.com/2023/07/08/opinion/carry-on-packing-airlines-lost-luggage.html">don’t check any luggage</a>. It may sound tough not to have all your belongings when traveling, but it might be the best option as bag fees take off.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/225857/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/jay-l-zagorsky-152952">Jay L. Zagorsky</a>, Associate Professor of Markets, Public Policy and Law, <a href="https://theconversation.com/institutions/boston-university-898">Boston University</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/why-do-airlines-charge-so-much-for-checked-bags-this-obscure-rule-helps-explain-why-225857">original article</a>.</em></p>

Travel Trouble

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4 “obscure” ways to save money according to an Aussie finance guru

<p><span style="font-weight: 400;">A 26-year-old entrepreneur by the name of Dominic Aarsen has been using some simple money hacks for years now and they’ve reportedly saved him $50,000.</span></p> <p><span style="font-weight: 400;">Some of these steps are “easy” and he claims they will save the average Australian $15,000 a year.</span></p> <p><strong>1. Literally cut up your credit cards</strong></p> <p><span style="font-weight: 400;">Aarsen says this is the step that surprises most people, but it’s the most effective.</span></p> <p><span style="font-weight: 400;">“Open your wallet and cut up every card except your key card. Every person I speak to sounds outraged (by the hack), but if people don’t have access to credit, they won't use it,” he said to </span><a href="https://www.news.com.au/finance/money/wealth/expert-reveals-11-obscure-ways-to-save-extra-cash-on-the-side/news-story/64fee5cef680f2de851ff959293c13c6"><span style="font-weight: 400;">news.com.au</span></a><span style="font-weight: 400;">.</span></p> <p><span style="font-weight: 400;">“If you’re not good with money, I guarantee switching from card to cash will save you a thousand dollars in the first two months.”</span></p> <p><strong>2. The “two-minute trick”</strong></p> <p><span style="font-weight: 400;">“It doesn’t matter what you buy — whether it’s food or if you’re shopping for clothes — hold it in your hand, set the timer on your phone and wait for two minutes, and you’ll find that more than half the time you don’t actually buy it,” he said.</span></p> <p><span style="font-weight: 400;">“It’s a psychological trick that retrains your brain. Most of the time they’re not big purchases — usually under $10 — but lots of $10 adds up quickly.”</span></p> <p><strong>3. The “Coke bottle hack”</strong></p> <p><span style="font-weight: 400;">This hack involves putting every spare $2 coin you find into a 600ml drink bottle which will add up to $1,000 when full.</span></p> <p><span style="font-weight: 400;">Aarsen said that collectively, Australians throw away or lose more than $350 million a year, with coins falling down the couch or accidentally thrown in the bin.</span></p> <p><strong>4. “Locking” your bank account over the weekend</strong></p> <p><span style="font-weight: 400;">Aarsen believes that you should “lock” your bank account during times you might be tempted to overspend, such as on weekends.</span></p> <p><span style="font-weight: 400;">“Most people don’t know you can call your bank and lock your account, which means you can log into your app but you can’t transfer your money,” he explained.</span></p> <p><span style="font-weight: 400;">“All it takes is 30 seconds and it’s not like the money disappears, you just can’t get to it.”</span></p> <p><span style="font-weight: 400;">However, Aarsen is aware that his tactics are easy but extreme.</span></p> <p><span style="font-weight: 400;">“If I asked you if you wanted to save $15,000 you would say yes, absolutely, but if I said, ‘Here’s one thing that will save you $500’, you might be less inclined to do it,” he said.</span></p> <p><span style="font-weight: 400;">“But $500 here and there will actually make a massive difference, but unless it’s right in front of your face, a lot of people won’t do it.”</span></p>

Money & Banking

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Test yourself: Do you know what these obscure words mean?

<p>No matter how big we think our vocabulary is or how many books we read, there’s always plenty more words to add to our ever-growing lexicon.</p> <p>So, if you’re ready to expand your vocab and give your brain a workout, test yourself with our quiz and see just how many obscure English words you know – the results might just surprise you!</p> <div class="pb_feed" data-embed-by="d8abea86-ae62-4b8e-8a5d-828badfa1745" data-item="9ad43697-dff4-4b50-abee-3870f6aa243b" data-recommend="false" data-game-info="false" data-comments="false" data-shares="false"></div> <p style="text-align: center;"> </p> <p>Tell us in the comments below, what score did you receive?</p>

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