Spirit Airlines Incorporated (SAVE), Allegiant Travel Company (ALGT): Is This Outlandish Airline Fee a Game-Changer?

Spirit AirlinesTo say that airline fees are getting out of hand could be quite the understatement. Last year I chronicled 10 of the most outlandish fees that airlines charge, ranging from a $450 overweight international baggage fee for American Airlines, to Hawaiian Holdings, Inc. (NASDAQ:HA), which will charge $175 just to bring your pet on board.

The comforting fact about many of these charges, if there is one, is that they’re usually optional. You don’t have to buy a $3 bottle of water from Spirit Airlines Incorporated (NASDAQ:SAVE) or pay $17 to $25 for a pillow and blanket from Allegiant Travel Company (NASDAQ:ALGT) if you don’t want to — and they’re often confined to a single airline. However, one charge is slowly infiltrating the sector that may soon become commonplace and promises to be a game-changer — namely, the carry-on baggage fee.

Source: Commons.wikimedia.org.

Spirit Airlines Incorporated (NASDAQ:SAVE) began charging customers for carry-on bags in 2010 as part of its campaign to undercut regional and national carriers with ultra-low ticket prices and allow consumers to add optional items at their discretion (baggage, carry-on baggage, food and drinks, etc.) to drive its margins. Spirit Airlines Incorporated (NASDAQ:SAVE) learned quickly that these ancillary fees, which it typically discounts if they’re booked online, or in some cases even at the airport’s point-of-sale machines, rarely require a physical airline representative for collection purposes, making them beefy margin boosters. Spirit Airlines Incorporated (NASDAQ:SAVE) later upped its carry-on fee to as much as $100 for customers who wait to check their bag at the gate.

Allegiant Travel Company (NASDAQ:ALGT) followed suit in April of last year, announcing a plan to charge $30 for carry-on bags that were booked online, and also adding a surcharge for bags booked at the airport.

On Wednesday, Republic Airways Holdings Inc. (NASDAQ:RJET) -owned Frontier Airlines announced that it, too, plans to join the carry-on-bag-charging club. However, Frontier’s carry-on baggage charge, which will range from $25 to $100, is unique in that it doesn’t slap every customer with the charge as Spirit Airlines Incorporated (NASDAQ:SAVE) and Allegiant Travel Company (NASDAQ:ALGT) currently do. Instead, carry-on bags will remain free for customers who book their flights through Frontier, but an added charge will apply for customers who book their flight through third-party websites such as Expedia Inc (NASDAQ:EXPE) and Orbitz Worldwide, Inc. (NYSE:OWW) which typically offer cheaper flight prices than what you’ll find on airline companies’ websites.

Source: Commons.wikimedia.org.

“A whole different animal”
Frontier’s move is groundbreaking for two particular reasons.

First, it adds yet another airline to those charging for carry-on bags. Spirit Airlines Incorporated (NASDAQ:SAVE) and Allegiant Travel Company (NASDAQ:ALGT) are writing the book on utilizing high-margin optional fees to drive bottom-line growth, and other regional airlines appear likely to catch onto this growth-driver. Either that or they will simply be left behind.