Spirit Air pushes limit with $45 bag fee

People wait in line to check in at the Spirit Airlines counter at LaGuardia Airport in New York, November 24, 2009.

CHICAGO/NEW YORK (Reuters) - Every U.S. airline is thinking of ways to get more money from their passengers. Few have provoked the outrage that Spirit Airlines has with its new carry-on luggage fee.

The low-cost carrier is taking the blows that come with being the first to seize on an unpopular, but possibly lucrative idea. That does not mean that it will be the last.

A few years ago, paying up to $45 to stow a piece of luggage in the overhead bin seemed as unthinkable as installing a pay toilet in the coach class. But it's a new day for U.S. airlines as many struggle daily for survival in a volatile business with razor-thin profit margins.

One of the ways to do that is to think up as many new fees as they can, and hope enough other airlines do the same thing, forcing passengers to deal with it or not fly at all.

Some people voiced support -- tepid support -- but most have nothing good to say about the carry-on fee.

"Now it's like there's nothing sacred anymore," said Adam Barrera, 24, a Houston-based blogger on cars. Barrera said he flies about three times a month, usually on Continental Airlines CAL.N. He has never flown on Spirit.

Florida-based Spirit, which flies to 40 destinations in the United States, the Caribbean and Latin America, shrugged off criticism, noting that it would lower its fares to offset the new carry-on bag fee. Bags placed in the seat in front of a passenger remain free.

"I would pay $5 for guaranteed space right over my seat, like a locker," said John DiScala, editor-in-chief of JohnnyJet.com, a travel information website, who has not flown Spirit. "But $45?"

ROCK-BOTTOM PRICES

Still, Spirit's sales have jumped 50 percent since the airline unveiled the new fee and fare cut versus the last week, Chief Executive Ben Baldanzas said on Wednesday.

"On its face, (the fee) is maybe repulsive to some people," Baldanzas said in an interview. "But at the same time, we've lowered the base fares by more than the amount of the fee."

Roughly 18 percent of Spirit's available seats are now being sold at a penny plus the cost of fuel and taxes.

For some people, a baggage fee could be a good thing, or at least tolerable. Many passengers grumble about the large bags that people bring on board planes instead of paying to check them. For others, the fee might not cancel out the low cost of a discount airliner's fares.

"With Spirit, it's very clear what you're going to receive," said Jay Sorensen, a consultant with IdeaWorks Company. "A rock-bottom, low fare, and for a tremendous number of customers that is what is most important."

Spirit is charging passengers $45 for carry-on bags if they pay at the gate. But if they pay at the ticket counter or online, the fee is $30.

It costs less -- $25 -- to check your first bag, if you pay online.

This strategy is deliberate, Baldanzas said, to lessen the time it takes to turn around an aircraft. Spirit estimates it will save 5-7 minutes per flight with this new fee, saving as much as 20 hours a day.

This extra time is critical to Spirit's goal of boosting its number of hours flown by 10 percent in 2010 and another 20 percent in 2011, Baldanzas said.

Spirit is too small to sway the industry in favor of a carry-on bag fee, but it is reasonable for major airlines to look into it, said Morningstar equity analyst Basili Alukos.

"I think about it, and it makes sense for airlines to charge for carry-ons," Alukos said. "There is more of a convenience for bringing your bag on the place. It basically reduces the time you would want to wait."

FEE FATIGUE

The airline industry has been battered in recent years by low-fare competition, volatile fuel prices and a weak economy that eroded travel demand.

Major carriers have fought back with capacity cuts and tweaks to their business models that rely much more on ancillary revenue from new fees for items and services that once were included in the ticket price.

One of the most controversial fees was for checking a single bag. More than any other, the single bag fee opened the door for new fees. Industry watchers say there is always room for more.

So far, no major airlines have announced charges to match the Spirit carry-on bag fee. But none has ruled it out.

"We have taken no action on this," said a spokesman for AMR Corp AMR.N, parent of American Airlines. Continental declined to comment.

Spirit has said that items such as umbrellas, cameras, coats and strollers will not be charged.

A lingering question is how many more fees passengers can deal with.

"I know there is a welling of unhappiness at the nickel and diming of passengers," said Standard & Poors' analyst Jim Corridore. He said travelers could fight back by finding alternatives to air travel.

"I will not be at all surprised if someone else tries it (the fee)," he said. "My personal opinion is that it's too much for the passenger."

(Reporting by Kyle Peterson and Deepa Seetharaman; Editing by Robert MacMillan and Richard Chang)