Hawaiian Airlines’ base fares might attract passengers, but it’s baggage and other ancillary fees that are keeping the state’s largest carrier in the black.
The airline took in $19 million in baggage fees during the second quarter, according to data released Monday by the U.S. Department of Transportation. But despite those pesky $25 and $35 bag fees that passengers detest, Colorado-based airline consultant Mike Boyd said Hawaiian and other airlines have little choice but to add on those fees.
"The base fare alone doesn’t pay the freight, so those of us who need to check a bag or want a seat selection, that’s where the revenue is," he said. "It’s not customer adverse. It’s very positive. It’s a whole new model. Those of us who don’t want to check a bag don’t have to pay for it. Those of us who want any kind of ancillary service, we will pay for it."
While Hawaiian would have been profitable in the second quarter without the baggage fees, that’s not always the case. In the April-to-June period, Hawaiian earned $27.3 million, meaning it still would have been in the black without the baggage fees.
However, through the first six months of this year, Hawaiian’s profit was only $22.3 million because of a first-quarter loss. During that same six-month period, Hawaiian took in $36.3 million in baggage fees.
More striking is the $70 million that Hawaiian collected in bag fees for 2013. That more than compensated for its $51.9 million in net income.
Nationwide the 15 reporting U.S. airlines made $899.5 million from baggage fees in the second quarter, up 3.3 percent from $871.1 million in the year-earlier period. They also took in $752.8 million in reservation cancellation and change fees, up 4.7 percent from $719.2 million a year ago.
Hawaiian spokeswoman Ann Botticelli said the advent of the low-cost carrier and ultralow-cost carrier models have created additional fare pressure in the marketplace.
"These models offer an a la carte menu of services, similar to the cable, insurance and mobile phone industries," she said. "By charging individually for services included in other carriers’ base price, the low-cost carriers and ultralow-cost carriers are able to offer base fare prices below the actual cost of providing the seat. Other carriers must offer competitive base ticket prices. Thus, ancillary prices have become increasingly important to maintain even marginal profitability."
There are frequent-flier and credit card programs that Hawaiian offers its HawaiianMiles members that allow for either free checked bags or discounts, Botticelli said.
Last quarter, Hawaiian’s baggage fee revenue was its most ever during an April-to-June period and was up 6.8 percent from $17.8 million in the second quarter of 2013. Hawaiian also took in $4.8 million in reservation cancellation and change fees last quarter, up 11.9 percent from $4.3 million. The total second-quarter take from baggage, reservation cancellation and change fees: $23.8 million.
Island Air, the state’s second-largest carrier, also collected more fees than in the same period a year ago. Island Air had $992,000 in baggage fees, up 16.6 percent from $851,000 in the second quarter of 2013. Island Air had $167,000 in reservation cancellation and change fees, up 35.8 percent from $123,000 a year ago. Island Air’s total second-quarter take in those fees: $1.2 million.
"In 2008 when American Airlines started charging baggage fees, it could charge bag fees and not raise the base fare as much as it used to, so the base fee looked better," Boyd said. "They stumbled on this process, and consumers now know if they want to buy a ticket that all of these things are kind of like a menu and people choose from a menu.
"For Hawaiian the $19 million is paid by people who willingly want additional service, and for those who don’t, they don’t have to pay for it."
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