In a bid to counter the threat posed by rising oil prices, United Continental Holdings, Inc. UAL has hiked checked baggage fees. The carrier now charges $30 and $40 for checking the first and second bags, respectively. The earlier charges were $25 for the first bag and $35 for the second. The elevated fee structure, which took effect from Aug 31, is applicable on flights operating on the North American, Caribbean and Central American routes.
This Zacks Rank #3 (Hold) Chicago-based carrier’s announcement comes close on the heels of a similar move by Long Island City, NY-based JetBlue Airways Corporation JBLU.The low-cost carrier had hiked the fee to $30 for the first checked bag from $25. Fees for the second and third checked bags have also been increased. However, United Continental, unlike JetBlue, did not announce an increase in fees to change tickets.
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We note that the rise in fuel costs has been hurting the airline space big-time. Oil prices have risen roughly 10% year to date. Since expenses on fuel are significant for airlines, an increase in oil prices is unfavorable for the space. In fact, airline heavyweights like American Airlines Group Inc. AAL and Delta Air Lines, Inc. DAL have trimmed their respective full-year earnings per share forecasts due to high fuel costs.
With bottom-line growth hampered by high fuel costs, airlines are looking to augment their top lines by raising fees for checking bags and other services. Given this current environment, we expect other airlines to follow the path adopted by JetBlue and United Continental for generating higher revenues. Naturally, we expect investors’ focus to remain on this burning issue.
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