June 12, 2008 / 3:04 PM / 11 years ago

UPDATE 2-United Airlines to charge fee to check single bag

(Adds CEO and analyst comments, more background)

By Kyle Peterson

CHICAGO, June 12 (Reuters) - UAL Corp’s UAUA.O United Airlines matched American Airlines’ AMR.N controversial $15 fee to check a single bag on Thursday as the industry struggles to offset soaring fuel prices.

The parent of the No. 2 U.S. airline also said it raised the fee it charges to check three or more bags, overweight bags or items that require special handling to $125 from $100, or to $250 from $200, depending on the item.

New bag-check fees, which have rankled the traveling public, are part of a broad effort by airlines to charge passengers for services that used to be included in the fare. Some carriers charge for in-flight perks such as meals, drinks and snacks.

“With record-breaking fuel prices, we must pursue new revenue opportunities, while continuing to offer competitive fares, by tailoring our products and services around what our customers value most and are willing to pay for,” John Tague, UAL’s chief operating officer, said in a statement.

The U.S. airline industry has been clobbered by soaring fuel costs, an expense that led to steep losses in the first quarter. The price of jet fuel is directly linked to the price of crude oil, which hit a record high above $139 a barrel last week.

Carriers have repeatedly hiked fares to offset that cost, but experts say a weakening U.S. economy could hamper airlines’ ability to raise their prices.

United’s single-bag fee is the second such fee launched by a major airline. The airline was the first legacy carrier to implement a $25 fee to check a second bag.

The changes apply to customers who buy a ticket on or after June 13 for travel within the United States and to or from Canada, Puerto Rico and the U.S. Virgin Islands on or after Aug. 18. The $15 fee does not apply to some customers who are members of United’s loyalty programs.

United said fees for checking the first and second bags would generate revenue of about $275 million a year. American Airlines faced harsh criticism last month when it announced its new bag check policy.

Jim Corridore, an equity analyst at Standard & Poor’s, said it was unclear whether rival carriers would match the new fee or if passengers would avoid flying on United and American rather than pay the fee. In any event, United’s new fee underscores the airlines’ desperation, he said.

“I would say the airlines are leaving no stone unturned in their search for revenue opportunities,” Corridore said.

As pressure mounts, carriers have responded with major reductions in their capacity — the number of seats for sale. Last week, United said it would cut its mainline domestic capacity by 17 percent or 18 percent and eliminate 1,400 to 1,600 jobs.

Last month, American said it would cut its domestic capacity by 11 percent or 12 percent in the fourth quarter. Continental Airlines (CAL.N) also has said it would cut thousands of jobs and retire 67 planes.

Speaking on Thursday at UAL’s annual shareholders’ meeting in Los Angeles, Chief Executive Glenn Tilton complained that no one could have anticipated the drastic steps airlines would have to take. He said the industry must act in concert to find stability in a high fuel environment.

“It is abundantly clear — now, perhaps more than ever — everyone participating in the industry must do their part to respond to these unprecedented market conditions,” Tilton said.

UAL shares were down 66 cents at $6.56 on Nasdaq.

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