Airlines Need to Boost Revenue. They’re Coming for Your Bags.

Airlines facing tough financial comparisons after a bumper year have a plan to boost revenue that fliers will hate. They’re raising the price of checking your bag.

Delta Air Lines , the latest company to announce a price hike, announced last week it was increasing the cost of a passenger’s first checked bag to $35 from $30 and a second bag to $45 from $40. The company last increased checked baggage fees in 2018. American Airlines and United Airlines made similar changes, raising baggage fees by about $5, and JetBlue Airways and Alaska Airlines have also raised prices.

Airline companies are dealing with a double whammy. Higher labour costs and an uptick in maintenance costs are eating into revenue. Meanwhile, domestic demand has softened , hitting pricing power for airlines.

Fees are a significant and growing source of revenue for airlines. U.S. airlines generated $6.8 billion from bag fees in 2022, according to the Bureau of Transportation Statistics , up from $5.3 billion in 2021. American Airlines generated $1.4 billion from baggage fees that year, which accounts for less than 3% of its 2022 revenue. United made $1.1 billion, or 2.6% of its 2022 revenue; Delta pocketed $980 million, or 2.1% of its 2022 revenue.

It’s likely those figures grew in 2023, a record-breaking year for travel with six of the 10 busiest days in U.S. aviation history, according to the Transportation Security Administration. With airlines hiking prices on the first checked bag by an average of 17%, that number could rise again this year.

That should help offset the decline in airfare. Ticket prices were 6% lower in January compared with the year-ago period, according to January’s consumer price index data. Online travel agency Hopper expects domestic fares to remain below 2023 and pre pandemic levels for at least the first half of the year.

Hopper’s lead economist Hayley Berg said more planes in the air have helped bring prices down. “Price relief on domestic airfare comes as domestic seat capacity has maintained at least a 5% lift over 2019 levels throughout 2023,” she said.

Ultimately, baggage fees account for between 2% and 3% of revenue for the largest U.S. airlines. But the market will be judging United, American, and Delta against a strong 2023, so every little helps. All three stocks have risen between 7% and 10% in 2024. And there are other more important factors, such as costs, demand, and capacity constraints, that will have a larger impact on earnings.

Of course, earnings aren’t the first thing on the minds of travellers who are now getting hit with higher fees.

For decades, the world’s computing power has quietly expanded at an astonishing pace.

From the first transistor developed at Bell Labs in 1947 to modern processors containing billions and even trillions of transistors, each generation of technology has been faster, smaller and more powerful than the last.

But according to quantum physicist and technology entrepreneur David Reilly, that era of effortless progress is beginning to slow.

Reilly, CEO of Sydney-based Emergence Quantum and Professor of Physics at the University of Sydney, says the computing infrastructure underpinning modern economies is approaching fundamental physical limits.

And that could have enormous implications for finance, artificial intelligence and global investment.

Speaking at an industry event organised by Kanebridge International, Reilly said many critical parts of modern society depend on computing and the infrastructure used to process information.

The slowdown behind the tech boom

For years, the technology industry relied on a steady improvement known as Moore’s Law, where the number of transistors on a chip doubled roughly every two years.

More transistors meant more computing power, allowing faster software, smarter devices and ever-larger data systems.

Today, however, those gains are slowing.

“It feels to me very innate that I’m going to just find that next year there’s going to be another breakthrough,” Reilly said.

“But if you look at the data…there’s a slowing down, a roll off in performance that started some 10, 20 years ago.”

Rather than making chips dramatically faster, manufacturers are now largely increasing computing capacity by packing more transistors onto each processor.

The approach works, but it comes with growing complexity, higher costs and increasing energy demands.

The brute-force race for AI

That challenge is already visible in the massive data centres being built to support artificial intelligence.

In the race to dominate AI, companies are constructing vast computing facilities that consume huge amounts of electricity and water. Reilly described this expansion as a “brute force” approach driven by the global competition to develop advanced AI systems.

Yet the demand for computing power continues to accelerate.

Artificial intelligence, advanced robotics, healthcare research, pharmaceuticals and cybersecurity all require far more processing capacity than today’s systems can easily deliver.

The question now facing the technology sector is whether traditional computing can keep up.

Enter quantum computing

That is where quantum computing enters the conversation.

Unlike conventional computers, which process information using binary switches that represent ones and zeros, quantum computers exploit the unusual behaviour of particles at the atomic scale.

Reilly describes them as a fundamentally different type of machine.

“So a quantum computer is a wave computer,” he said.

Instead of processing information through simple on-off switches, quantum systems can use wave-like properties of particles to process many possible outcomes simultaneously.

Those waves can interact in complex ways, reinforcing correct solutions while cancelling out incorrect ones. In theory, this allows quantum systems to tackle certain types of problems dramatically faster than classical computers.

What it could mean for finance

The concept may sound abstract, but its potential applications are significant.

Quantum computers are expected to transform areas such as materials science, chemical modelling and pharmaceutical development.

They could also help solve complex optimisation problems in logistics, finance and risk management.

For financial institutions in particular, the technology could offer new tools for detecting fraud, analysing market behaviour and optimising portfolios.

But the shift will not happen overnight.

“One message to take away is that quantum is not going to suddenly solve all of your problems,” Reilly said.

Instead, he said quantum systems will likely complement existing computing technologies as part of a broader and more diverse computing ecosystem.

Why data centres may soon “go cold”

One key change already emerging is how computing systems are physically designed.

Many next-generation technologies, including quantum processors, operate far more efficiently at extremely low temperatures. As a result, future data centres may rely heavily on cryogenic cooling systems to manage heat and energy consumption.

Reilly believes that the shift will gradually reshape the computing industry.

“Over the next five years, you’re going to see data centres go cold,” he said.

“And as that happens, they almost drag with them new compute paradigms.”

Emergence Quantum, the company he co-founded, is focused on developing technologies to support that transition, including cryogenic electronics and integrated hardware platforms designed for quantum computing and energy-efficient systems.

A new technological era

For investors and businesses, the technology remains in its early stages. But the scale of global interest is growing rapidly.

Governments, research institutions and technology companies are investing heavily in quantum research, betting it could become a foundational technology for the next generation of computing.

For Reilly, the moment feels similar to earlier technological turning points.

In the 19th century, new discoveries in thermodynamics helped drive the development of steam engines and the Industrial Revolution. In the 20th century, advances in electromagnetism led to radio, television and eventually the internet.

Quantum physics, he suggests, could represent the next chapter in that story.

“Today we have, as a society, in our hands new physics that we’re just beginning to figure out what to do with,” Reilly said.

“But I think it’s an exciting time to be alive and watch what happens over the coming decades.”