In a recent report by The Conversation, it has been revealed that five of the six largest US airlines have increased checked baggage fees since January 2024. For instance, American Airlines raised the cost of checking a normal bag from US$30 in 2023 to US$40 as of March 2024, marking a significant 33% increase.
One of the reasons behind airlines’ decision to charge separate baggage fees instead of bundling all charges is a tax loophole in the American tax code. The code excludes baggage fees from the 7.5% transportation tax imposed by the federal government as long as the charge is separable from the cost of transporting a person and is clearly stated in the exact amount. By dividing the cost of bags from the ticket price, airlines can save substantial amounts in taxes.
In 2023, airlines collected over US$7 billion in baggage fees alone, with the total baggage fees exceeding $70 billion in the past two decades. By spreading the cost of bags and charging for them separately, airlines have saved approximately $5 billion in taxes since 2002.
Although passengers may expect better service for the higher fees they pay, government data on mishandled luggage does not show a significant improvement. Mishandled bags peaked in 2007 but have decreased over the years, with around six bags per thousand checked being lost or damaged as of 2019.
Politicians’ efforts to regulate or ban baggage fees have been largely unsuccessful in the past, leaving travelers with the option to travel light and avoid checking bags to circumvent rising baggage fees. As baggage fees continue to increase, this may be the most practical solution for travelers looking to save money.
The implications of the tax loophole on airlines’ revenue and passengers’ experiences highlight the complex relationship between government regulations and industry practices in the aviation sector.