Passenger fees are boosting profit margins for many small airlines

Bad news for airline passengers who hate to pay bag fees and other charges for extras on a flight: Carriers that rely heavily on passenger fees are among the world’s most profitable airlines.

Based on operating profit margins, ultra-low fare airlines like Allegiant (24% margin), Spirit (21%), Frontier (17%) and Ryanair in Europe (20%) surpassed the biggest U.S. carriers, including American (15%), Delta (14%) and United (11%), over a 12-month period ending in June.

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Seth Kaplan, managing partner for the trade publication Airline Weekly, reached these conclusions after crunching the latest financial data. One of the key reasons for the healthy profit margins is the move by the airlines to “unbundle” fares to charge separately for food, drinks, entertainment and other extras, he said.

“There is no question that unbundling has been very profitable,” Kaplan said.

One advantage for the carriers is that airlines pay the government higher tax rates for revenue from airline tickets than they do for revenue from so-called ancillary fees like food and drink sales, he said.

But Kaplan said he doesn’t expect larger airlines to add too many more passengers fees.

He noted that US Airways began charging for coffee, water, juice and soft drinks during the economic recession a few years ago but ended the practice because of complaints from passengers.

“Consumers are willing to accept a lot of things but they will vote with their wallets,” he said.

To read more about travel, tourism and the airline industry, follow me on Twitter at @hugomartin.

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