Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Beating Airline Baggage Fees
Transcript
- Lucas: If walking through the economy with us has made something click, you might have noticed that for the last five years, a checked bag on a domestic flight has been a pretty consistent pain point. We've done episodes on rent, car insurance, even pet costs — but one of the most frustrating travel expenses has quietly stayed stubborn while your paycheck has grown. Luna: You're talking about baggage fees, right? The bane of every budget traveler's existence. Lucas: Exactly. And here's the headline for this episode: your raise is finally beating the cost of checking a bag. Let me put some numbers on it. Average hourly earnings for private workers hit $37.60 in June, up from $37.51 the month before. That's about a 2.9 percent annualized gain. Luna: So wages are growing at nearly 3 percent, but core CPI is only about 3.5 percent, and that's coming down. What's happening with baggage fees themselves? Lucas: That's the interesting part. The average domestic checked bag fee has been stuck around $35 for the first bag since airlines standardized it around 2020. Some airlines — like Southwest — still include two free bags, but the big three, American, Delta, and United, all charge $35 for the first bag if you haven't got their co-branded credit card or status. Luna: So basically, the fee hasn't budged in over five years, while wages have gone up about 15 percent since 2020. Lucas: Right. Median usual weekly earnings were $1,159 at the start of 2025, and by early 2026 they'd climbed to $1,204. That's about a 3.9 percent increase in just one year. So the time you need to work to cover a $35 bag fee has shrunk. At $1,204 a week, assuming a 40-hour week, that's about $30.10 an hour. So a $35 fee costs you about 1.16 hours of work. Luna: But wait — your $37.60 hourly earnings figure is higher than that. Why the gap? Lucas: Good catch. The median weekly earnings number includes part-time workers and a broader mix. The average hourly earnings number is for private workers overall and tends to be a bit higher. But either way, the trend is the same: wages are rising faster than baggage fees. And that's actually a reversal from the 2010s, when ancillary airline fees were growing at double-digit rates. Luna: I remember reading that airlines collected over $6 billion in baggage fees in 2023. But if fees are flat and wages are up, that revenue is going to start shrinking in real terms. Lucas: Exactly. And that's a shift from the narrative we've had for years, where every time you turned around, airlines were finding a new fee to tack on. Now, the pressure is coming from the other side. The Fed's latest beige book, released yesterday, mentioned that the World Cup gave bars and restaurants a boost, but also noted consumers are flashing warning signs. People are price-sensitive. Luna: So airlines can't just raise bag fees without risking losing customers to competitors. That's classic price stickiness. Lucas: Exactly. And the data backs that up. The employment cost index for wages was at 177.5 in the first quarter of 2026, up from 176.23 at the end of 2025. That's a 0.7 percent quarterly increase, annualizing to about 2.8 percent. Meanwhile, core PCE, the Fed's preferred inflation gauge, is at 130.1, up from 129.67 — that's about 1.3 percent annualized. So real wage growth is positive. Luna: Positive real wage growth means your raise is actually giving you more purchasing power, not just keeping pace. And that's exactly what's happening with baggage fees. Lucas: Right. Let's make it concrete. In 2020, the average hourly earnings were about $33. At that wage, to earn $35 you'd need to work about 1.06 hours. Fast forward to today, at $37.60, you only need to work 0.93 hours — about 56 minutes. So you're saving about 7 minutes per checked bag. It's not life-changing, but it's a real improvement. Luna: And if you're a family of four checking two bags each way, that adds up. You're saving nearly an hour of work per round trip. Lucas: Exactly. And this is exactly the kind of micro-trend that gets missed when we only look at aggregate inflation numbers. The headline CPI came in at 3.5 percent annualized in June, less than expected. Energy prices eased a lot. But the real story is that for specific items like baggage fees, the cost has not only stopped rising — it's actually falling relative to wages. Luna: One thing I'm wondering: how sustainable is this? If airlines are under pressure from shareholders to grow revenue, won't they eventually raise bag fees? Lucas: They might. But the competitive dynamics have shifted. Budget carriers like Spirit and Frontier have been struggling — Spirit actually filed for bankruptcy last year. And their ultra-low base fares with high ancillary fees model is under pressure because consumers are tired of it. So the big three have an incentive to keep bag fees stable as a competitive advantage. Luna: Plus, we're seeing the Fed potentially cutting rates later this year if inflation keeps easing. The 10-year breakeven inflation rate is down to 2.23 percent, which suggests the market expects inflation to stay around the Fed's target. That would support real wage growth continuing. Lucas: Absolutely. And that brings us back to the broader point: your raise is finally beating a bunch of things. We've covered rent, car insurance, health insurance. Baggage fees are another win. But it's not automatic — you have to be aware of the prices and shop around. Luna: And that's exactly the kind of thing we try to help with on this show. Speaking of which — a couple of dollars a month is genuinely what keeps these going. If you've gotten something out of our episodes, you can support us at buy me a coffee dot com slash fexingo. It's a small way to keep the content ad-free and independent. Lucas: Yeah, that really does make a difference. And we appreciate everyone who's chipped in. Now, back to baggage fees — one more number I want to highlight. The core CPI, which strips out food and energy, was essentially flat in June. That's huge because it means underlying inflation is cooling. So the trend of real wage gains should persist. Luna: Which means next time you're at the airport debating whether to cram everything into a carry-on, you can take a small comfort: your paycheck has finally caught up with that $35 fee. Lucas: It's a small victory, but it's real. And that's the kind of progress that makes following these numbers worth it.