In April, Frontier Airlines announced a change in its rules whereby passengers will be charged between $20 and $50 for the use of overhead bin space. Adding new fees is hardly surprising for ultra-discount airlines like Frontier, but it's worth taking a look at how far this policy could spread.
For a long time, discount airlines were the new alternative in the airline industry. One of the biggest players among discount airlines is Southwest Airlines (NYSE:LUV), which has prided itself on having fewer fees than traditional airlines. But as Southwest has grown in size, ultra-discount airlines are adopting an ever lower fare model, except it doesn't come with "Bags Fly Free."
Ultra-discount airlines are creating a business of ultra-low fares along with fees for everything from snacks to printed boarding passes. Spirit Airlines (NYSE:SAVE) embodies the ultra-discount airline by offering fares as low as $9, some of the least legroom in the industry, and charging fees for almost everything, including carry-on bags.
In fact, Spirit Airlines charges even more for carry-on bags than Frontier Airlines. The following chart gives a handy price comparison based on when the carry-on bag was reserved:
|Frontier Airlines||Spirit Airlines|
|At time of booking||$25 ($20 for Discount Den members)||$35 ($26 for $9 fare club members)|
|At airport check-in||$35||$50|
So, Frontier's approach is not unique, but it does show how a policy of charging for carry-on bags is spreading.
Who else will start charging?
With ancillary revenue essential to the operation of ultra-discount airlines, and the current adaptation at both Spirit and Frontier, carry-on bag fees are highly likely to spread to other ultra-discount airlines.
At first, one may assume a policy of ultra-discount airlines would next find a home at discount airlines. However, Southwest, and airlines that brand themselves in similar ways, would probably be the last ones to adopt such a fee. Even as checked bag fees have become commonplace at traditional airlines, Southwest continues to allow two free checked bags to its passengers as well as offer one of the most flexible change fee policies in the airline industry.
Instead, carry-on bag fees are more likely to make a jump to traditional airlines, where the checked bag fee was born. Although checked bag fees were seen as an outrage at first, they soon spread to almost all traditional airlines and have been grudgingly accepted today.
There have already been some strategies brewing against carry-on bags among traditional airlines. In March, United Continental Holdings (NYSE:UAL) began cracking down on oversized carry-on bags -- oversized being any bags that can't fit in the airport sizer displays. The airline claimed the move came amid complaints from passengers regarding oversize bags taking up too much space. However, critics argued United Continental is just looking for more fees since oversized carry-on bags have to be checked and a checked bag fee is collected.
If traditional airlines do move toward charging for carry-on bags, they may start by only charging a minimal fee for bags reserved at the time of booking with the larger fee applying to carry-on bags at check-in or at the gate. This would follow a similar pricing structure as the ultra-discount airlines regarding carry-on bags.
Will it happen?
Fees for carry-on bags are growing among ultra-discount airlines, but many other travelers are wondering whether these fees will find their way into traditional airlines. Traditional airlines have already made ancillary revenue a major part of their business through everything from checked bag fees to upgrades.
Traditional airlines are probably watching how these fees work out at ultra-discount airlines and running the calculations while waiting for other carriers to make the first move.
Alexander MacLennan has no position in any stocks mentioned. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.