Five U.S. airlines combined to bring in $12.4 billion in seat-selection revenue between 2018 and 2023, making it their second-largest source of ancillary revenue behind bag fees.
The figure, released in a Senate Permanent Subcommittee on Investigations report, is the first public disclosure of seat-selection revenues since airlines began collecting such fees in 2006. It includes revenue from the Big 3 legacy carriers -- Delta, United and American -- and the two largest U.S. ultralow-cost carriers -- Spirit and Frontier. The five airlines were the subject of the Senate subcommittee's probe.
The subcommittee reported that airlines account differently for seat fees, with American and Delta paying the 7.5% federal air transportation excise tax for such fees, just as they do on airfare revenue. Spirit, Frontier and United appear to have lowered their effective tax rates by classifying such fees as ancillary items not subject to the excise tax.
United pays for 4.8% in taxes for its seat-selection revenue, Frontier pays 3.1% and Spirit pays 2.5%. The figures are based on an analysis of charges for flights connecting Chicago O'Hare and Orlando between Nov. 22 and Nov. 30.
The report, submitted by the subcommittee's Democratic majority, recommends that Congress pass legislation requiring airlines to submit detailed data on seat revenue, just as they are required to do with bag fees. The subcommittee also recommends that the Treasury Department conduct an investigation to determine that air travel excise tax regulations are understood and enforced.
Airlines are required to pay the excise tax on all revenue collected for providing transportation, but does allow some ancillary carve-outs, including for bag fees. Revenue from the excise tax goes to the Airport and Airway Trust Fund, which is used for infrastructure improvements at airports and upgrading the FAA's air traffic control system.
"The growth of bundles, which increasingly resemble the standard tickets of the era before ancillary fees, appears to have decreased the share of customer payments that some airlines subject to the transportation tax," the report reads.
In a statement, U.S. airline advocacy group Airlines for America said that its members comply with all laws and regulations, including those on taxes and fees.
"Any suggestion otherwise is uninformed and inaccurate," the group said.
Airlines for America also dismissed the report as "just another holiday travel talking point," and said that average domestic roundtrip fares and ancillary purchases were 14% lower in 2023 than in 2010, adjusted for inflation.
According to the subcommittee, seat-selection revenue at American, Delta, Frontier, Spirit and United was $3 billion in 2023, up from $2 billion in 2018. Seat-selection revenue also increased as a percentage of total revenue, with Spirit having the largest percentage increase -- 6.6% of total revenue in 2023, up from 5% in 2018.
United, meanwhile, collected $1.3 billion in seat-selection revenue in 2023, exceeding bag fee revenue ($1.2 billion) for the first time.
Of the five airlines in the study, Delta relies the least on seat-selection revenue, which is just 0.3% of Delta's total revenue.
Paying gate agents to collect carry-on bag fees
The subcommittee also called out the practice of revealing seat fees late in the booking path. According to the report, Spirit chief commercial officer Matt Klein told the subcommittee that Spirit required customers to provide personal information on the airline's website before showing the price of selecting seats because that tactic generates the most purchases.
In a statement, Spirit said that it is transparent about its products and pricing.
"We respectfully disagree with numerous statements and conclusions contained in the report," the airline said.
The report also zeroed in on Spirit and Frontier policies to pay gate agents who flag customers who haven't paid for carry-on-bags. In 2022 and 2023, Spirit and Frontier paid more than $26 million in employee incentives to collect fees, the report says. At Frontier, customer service agents receive $10 for each fee collected for carry-on bags at the departure gate. Spirit pays a $5 commission. In 2023 alone, Frontier agents received $11.4 million in such payments.
The report questions whether the incentives have led some agents to improperly enforce Frontier and Spirit bag policies by charging customers for a carry-on even though their bags were small enough to qualify as a free personal item. Baggage complaints at both airlines increased after the incentive programs were put in place in in 2022.
"The commission for gate agents is simply designed to incentivize our team members to ensure compliance with bag-size requirements so that all customers are treated equally and fairly, including the majority who comply with the rules," Frontier said in a statement.
The subcommittee recommended that the Transportation Department, under its authority to crack down on unfair and deceptive practices, investigate potential abuses by airlines in the use of incentives to collect bag fees and other ancillary fees.
Representatives of all five airlines referenced in the report will testify before the Permanent Subcommittee on Investigations at a Dec. 4 hearing.