Airlines make less on bag fees while promoting credit cards

Don’t feel sorry for airlines yet.

Airlines made 4% less on baggage fees in 2013 than in the previous year, according to federal statistics released last week.

That sounds like great news for consumers, but it’s only part of the story. Airlines have been waiving bag fees as an incentive to get travelers to sign up for fee-generating airline loyalty reward credit cards.

Over the last few years, United, American, Delta, US Airways, Virgin America and Hawaiian Airlines have promoted airline loyalty reward cards that let fliers check one bag for free. For example, American Airlines introduced a Citi Platinum Select card that waived bag fees in 2012.

Bag revenue collected by American Airlines dropped 9% from $557 million in 2012 to $506 million in 2013, according to the U.S. Bureau of Transportation Statistics. Airlines are not required to disclose income from loyalty reward programs, and American declined to say to what extent credit card fees made up the difference.

Another cause for the drop could be that travelers are packing fewer bags to avoid the fees, but some industry experts say the push for credit cards with bag fee waivers is playing a big role in the decline.

Carriers are most likely collecting enough revenue from their credit cards to make up for the loss of the waived bag fees, these experts say.

“They are earning revenue in many ways,” said Brian Karimzad, director of the reward card comparison site MileCards.com. “They get a cut of the annual fees and a cut of what you spend on those cards.”

Jay Sorensen, president of IdeaWorks, a Wisconsin consulting company for the airline industry, agrees that airlines are probably not losing money over the credit card fee-waiving tactic.

“Airlines don’t do anything unless they come out ahead,” he said. “The airlines are generating equal, if not more, revenue from banks.”