$2.5B/yr seems like a lot of added revenue for the industry, but this is a very, very high-revenue, low-margin business. Has anyone actually modeled the cost of especially first bag fees? Some obvious sources include:

- Longer boarding times - Passenger loss (to alternative transport, or no transport at all)

Just considering boarding/turnaround times, increasing them by 10% could easily wash out the entire revenue stream for the airlines.

>this is a very, very high-revenue, low-margin business.

this is why any additional fee increases profit disproportionally

This is great -

Southwest still doesn't charge baggage fees (not until your third checked bag anyway).

I've heard industry analysts criticize Southwest for not charging fees and 'leaving that money on the table' (including explicitly calling for shareholders to demand they start charging).

Last time I checked though Southwest continues to be a highly profitable company - something most major airlines cannot claim.

How many times has Delta been in bankruptcy in the last 20 years?

A clarification: it's not quite true that baggage fee income is tax-free. It is simply free of the government's 7.5 percent transportation federal excise tax (pre-income-tax tax). Baggage fees aren't deductible on a corporation's income tax return.

Wait. So they are free of the transportation excise tax. BUT they are NOT free from income tax; e.g. Delta spends $100 billion running its business, sells $70 billion in tickets (and the necessary transportation taxes), and collects $40 billion in baggage fees, there's still $10 billion left to pay income taxes on.

On YOUR company's taxes (because you're company is not the airline but pays for you to travel by air to Timbuktu), it's still an expense and still deductible as such. Right?

I'm not sure what you are asking. Yes, if my company sends an employee somewhere, we deduct the full expense (if we are paying it) on our tax return. And yes, Delta in that example has a taxable income of $10BB. If the IRS ruled that the travel tax applied, then taxable income would be $7BB due to the additional $3BB in excise tax from $40BB of baggage fees (ignoring the question of whether the cost would be passed on.)

The Hipmunk graphic suggested that, by your example, Delta would have $110BB of income, $100BB of expenses and a $40BB deduction (if baggage fees were not taxable.) This would be a $30BB loss for tax purposes. Even using real numbers this would be outrageous...but it is not the case.

Not really asking as much as clarifying.

"Baggage fees aren't deductible on a corporation's income tax return." This makes it sound like I can't deduct it as a travel expense.

Oh, yes it does sound like that. I meant it in the context of avoiding paying taxes on revenue. Sorry about that.