PRICES AND SPENDING

U.S. BUREAU OF LABOR STATISTICS

MAY 2012 • VOLUME 1/ NUMBER 2

U.S. BUREAU OF LABOR STATISTICS | MAY 2012 1 www.bls.gov

How new fees are affecting the Producer Price Index 

for air travel

Authors: Producer Price Index staff

Since 2001, the airline industry has been affected by a 

number of external shocks, including terrorist attacks, 

volatile fuel prices, periods of challenging economic 

times, and an uncertain regulatory environment. In large part 

because of these factors, the industry has endured years of 

economic losses—$50 billion between 2001 and 2011—resulting 

in many bankruptcies and mergers.1 These losses have led airlines 

to focus on revenue-management strategies. One important way 

airlines have generated additional revenue is by adding surcharges 

and/or increasing ancillary fees for optional services or a la carte 

pricing. As an example, rather than airlines passing on higher fuel 

costs in the form of fare increases, fuel surcharges may be less 

noticeable. Passengers may be more likely to accept increases in 

fares if they know that fuel prices and fuel surcharges are rising 

Related articles

More BLS articles and information related to 

airlines are available online at the following links:

y “International air passenger fares shrug off

the recession,” http://www.bls.gov/opub/

btn/volume-1/international-airpassenger-fares-shrug-off-therecession.pdf

y “Measuring Price Change for Air 

Passenger Fares in the U.S. Import/Export 

Price Indexes,” Export Price Indexes, 

http://www.bls.gov/mxp/apfact.pdf

y “How BLS Measures Price Change for 

Airline Fares in the Consumer Price Index,” 

http://www.bls.gov/cpi/cpifacaf.htm
U.S. BUREAU OF LABOR STATISTICS | MAY 2012 2 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

in tandem. In addition, airlines have optimized capacity 

by eliminating and/or reducing the number of flights 

between some origins and destinations. These strategies 

have reduced the supply of available airline seats, giving 

airlines additional pricing power. 

Although some airline fees have existed for many years, 

airlines recently have expanded the number of services 

for which they charge fees. In many cases, these new 

fees are for services that traditionally had been part of 

the service that passengers expected when buying an 

airline ticket. Examples include: fees for first and second 

checked bags, cancelling a ticket, seat selection, blankets 

and pillows, carry-on bags, making reservations over the 

phone or in person, and in-flight food and beverages. 

Revenue attributable to most of these fees is a small part 

of overall revenue, with the exception of baggage and 

cancellation fees. Baggage and cancellation fees are the 

most common and largest in terms of revenue, growing 

from $1.4 billion in 2007 to $5.7 billion in 2010.2 As 

these fees have risen, they have become an increasingly 

important contributor to airlines’ bottom lines. Chart 1 

shows the growth in baggage and cancellation fees over 

the last two decades.

The exponential growth in baggage fees is due mainly to 

the implementation of new fees for passengers’ first and 

second checked bags—fees most airlines implemented 

in 2008 and early 2009. Prior to this, baggage fees were 

charged only for passengers with more than two checked 

bags, oversize bags, and overweight bags. 

The changing regulatory arena surrounding air travel is 

affecting both passengers and airlines. In 2012, the U.S. 

Department of Transportation began requiring more 

transparency, when it comes to airline fees. This affects 

how airlines advertise and post fares, and how they 

disclose baggage fees on their websites. The government’s 

goal is to give travelers all available information, so they 

can plan their air travel accordingly. 

Since December 1989, the Producer Price Index (PPI) for 

Scheduled Passenger Air Transportation, which measures 

the average change in selling prices received by domestic 

airlines, has published monthly. In 2009, this index was 

adjusted to account for the imposition of new first and 

second checked-bag fees and for cancellation fees. Since 

then, this index has reflected the increasing importance 

of these fees. If the adjustment for new baggage and 

cancellation fees had not been made, it is estimated that 

Chart 1

NOTE: 2011 includes an estimate for the fourth quarter.

SOURCE: Bureau of Transportation Statistics, Air Carrier Financial: Schedule P-1.2.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Baggage fees Cancellation fees

Air carrier baggage and cancellation fees, 1990–2011

Billions of dollars

NOTE: 2011 includes an estimate for the fourth quarter.

SOURCE: Bureau of Transportation Statistics, Air Carrier Financial: Schedule P-1.2.
U.S. BUREAU OF LABOR STATISTICS | MAY 2012 3 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

the PPI for Scheduled Passenger Air Transportation would 

have been 1.6 percent lower in December 2009 than the 

final data indicated.3 This is illustrated in chart 2, which 

shows the published PPI for scheduled passenger air 

transportation and an estimate of what the index would 

have been without the adjustments for baggage and 

cancellation fees.

Producer inflation mixed in first 

quarter 2012, core PPIs rise

The Producer Price Index (PPI) for finished goods advanced 

0.5 percent in the first quarter of 2012, compared with 

a 0.2-percent decline in the fourth quarter of 2011.4

The majority of this upturn can be traced to prices for 

finished goods less foods and energy, which increased 0.9 

percent for the 3 months ended March 2012, following a 

0.2-percent rise in the preceding quarter. Also contributing 

to the upturn in finished goods prices, the finished energy 

goods index edged down 0.2 percent in the first quarter, 

after falling 1.5 percent for the 3 months ended December 

2011. In contrast, prices for finished consumer foods

moved down 0.3 percent in the first quarter, following 

a 0.3-percent rise in the fourth quarter. At the earlier 

stages of processing, prices received by manufacturers 

of intermediate goods increased 1.1 percent for the 3 

months ended in March, after decreasing 1.0 percent in 

the prior quarter. Most of this reversal is attributable to a 

similar first-quarter upturn in the index for intermediate 

goods less foods and energy. Prices for intermediate foods 

and feeds and intermediate energy goods inched up, 

after declining in the previous quarter. From December to 

March, the crude goods index fell at about the same rate as 

in the final quarter of 2011, 0.6 percent, compared with 0.8 

percent. In the first quarter, lower prices for crude energy 

materials outweighed higher prices for crude foodstuffs 

and feedstuffs and core crude goods.

5

Economic background

Across the stages of processing, the PPIs for goods 

other than foods and energy provide a varied picture 

of inflation for the last 6 months. The shift in prices for 

core crude goods was led by the indexes for nonferrous 

ores and scrap, which rose in the first quarter of 2012, 

following steep declines in the fourth quarter of 2011. 

Likewise, upturns in prices for grains and oilseeds also 

contributed to this reversal. Prices for many lightly 

Chart 2

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250

255

Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009

Published PPI for scheduled passenger air transportation

Estimate of PPI without baggage and cancellation fees

Effect of baggage and cancellation fees on the Producer Price Index for scheduled passenger air 

transportation, 2009

SOURCE: U.S. Bureau of Labor Statistics.

Index level

SOURCE: U.S. Bureau of Labor Statistics.
U.S. BUREAU OF LABOR STATISTICS | MAY 2012 4 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

processed materials included in the intermediate core 

index also moved up from December to March, after 

falling in the preceding quarter: industrial chemicals, 

plastic resins, synthetic rubber, nonferrous primary metals

and mill shapes, and steel mill products. In contrast, 

the index for more highly processed components for 

manufacturing inched up at a 0.3-percent rate for the 

second consecutive quarter. Within finished goods, 

the modest acceleration in prices for goods other than 

foods and energy was led by an upturn in prices for light 

motor trucks, as well as the index for pharmaceutical 

preparations, which rose at a faster rate in the first quarter 

of 2012 than in the fourth quarter of 2011.6

On April 4, 2012, the U.S. Bureau of Economic Analysis 

reported that total U.S. light duty motor vehicle sales 

for March 2012 were 14.3 million units, on a seasonally 

adjusted annual basis. This figure was 9.9 percent above its 

year-ago level and 22.5 percent higher than 2 years earlier. 

Furthermore, February’s 15.0 million units reflected the 

best monthly sales figure in the United States in more than 

4 years.7 In terms of recent U.S. gross domestic product, 

after stalling at the start of 2011, the rate of growth in 

U.S. gross domestic product slowly gained momentum 

through the remainder of 2011.8

Finished goods

The PPI for finished goods moved up 0.5 percent for the 3 

months ended March 2012, subsequent to a 0.2-percent 

decline in the fourth quarter of 2011. Accounting for more 

than half of this upturn, prices for finished goods less foods 

and energy rose more from December to March than in 

the prior 3-month period. The decrease in the index for 

finished energy goods slowed in the 3 months ended in 

March compared with the previous quarter. By contrast, 

prices for finished consumer foods turned down in the first 

quarter of 2012 after rising from September to December. 

(See chart 3.)

The index for finished goods less foods and energy

advanced 0.9 percent for the 3-month period ended in 

March compared with a 0.2-percent gain from September 

to December. Prices for light motor trucks rose 1.2 percent 

from December to March, after declining 1.0 percent for 

the 3 months ended in December. The index for plastic 

products also turned up in the first quarter of 2012. 

Prices for pharmaceutical preparations increased more 

in the 3 months ended in March than in the preceding 3 

months. Conversely, the increase in the passenger cars

index slowed to 0.1 percent for the 3-month period ended 

in March, following a 0.7-percent advance in the fourth 

Chart 3

SOURCE: U.S. Bureau of Labor Statistics.

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0.2

0.5

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0.9

-2.0

-1.0

0.0

1.0

2.0

Overall Food Energy Core

Percent change

Sept 2011 - Dec 2011 Dec 2011 - Mar 2012

SOURCE: U.S. Bureau of Labor Statistics.

Three-month percent change in PPI for overall, food, energy, and core finished goods, seasonally 

adjusted, fourth quarter 2011 and first quarter 2012
U.S. BUREAU OF LABOR STATISTICS | MAY 2012 5 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

quarter of 2011. Cigarette prices also moved up at a slower 

rate from December to March, compared with the prior 

3-month period. The index for nonwood commercial 

furniture declined in the first quarter of 2012, after rising 

from September to December.

Finished energy goods prices moved down 0.2 percent 

in the first quarter of 2012, compared with a 1.5-percent 

decline for the 3 months ended in December. From 

December to March, lower prices for residential natural 

gas, residential electric power, and liquefied petroleum gas

more than offset higher prices for gasoline, diesel fuel, and 

home heating oil. 

For the 3 months ended in March, prices for finished 

consumer foods fell 0.3 percent, subsequent to a 

0.3-percent increase for the preceding quarter. Leading 

this downturn, beef and veal prices fell 2.7 percent in 

the first quarter of 2012, after rising 3.6 percent for the 3 

months ended in December. The index for eggs for fresh 

use also turned down in the 3-month period ended in 

March. Prices for natural, processed, and imitation cheese

decreased at a faster rate, compared with the fourth 

quarter of 2011. In contrast, the decline in the index for 

fluid milk products slowed to 3.9 percent from December 

to March from 7.3 percent in the prior 3-month period. 

Prices for russet potatoes turned up in the first quarter, 

following a decrease in the final 3 months of 2011, and the 

index for soft drinks rose in the 3 months ending in March, 

after registering no change from September to December.

Intermediate goods

The PPI for intermediate materials, supplies, and 

components rose 1.1 percent in the 3-month period ending 

March 2012, subsequent to a 1.0-percent decrease in the 3 

months ended in December 2011. This upturn was broad 

based, with prices for intermediate materials less foods and 

energy, intermediate foods and feeds, and intermediate 

energy goods all rising from December to March, after 

decreasing in the fourth quarter of 2011. (See chart 4.)

Prices for intermediate goods less foods and energy

increased 1.6 percent in the first quarter of 2012, 

following a 1.3-percent drop in the prior 3-month period. 

The index for primary basic organic chemicals led this 

upturn, surging 14.0 percent from December to March, 

subsequent to falling 15.7 percent in the fourth quarter 

of 2011. Prices for nonferrous metals, plastic resins and 

materials, steel mill products, and synthetic rubber also 

advanced in the 3 months ended in March, after declining 

Chart 4

SOURCE: U.S. Bureau of Labor Statistics.

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-1.8

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1.1

0.1 0.1

1.6

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Overall Food Energy Core

Percent change

Sept 2011 - Dec 2011 Dec 2011 - Mar 2012

SOURCE: U.S. Bureau of Labor Statistics.

Three-month percent change in PPI for overall, food, energy, and core intermediate goods, seasonally 

adjusted, fourth quarter 2011 and first quarter 2012
U.S. BUREAU OF LABOR STATISTICS | MAY 2012 6 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

from September to December. Conversely, the fertilizer 

materials index moved down 7.3 percent from December 

to March, following a 4.1-percent increase in the previous 

3-month period. 

The index for intermediate foods and feeds inched 

up 0.1 percent for the 3 months ended in March, 

subsequent to a 1.8-percent decrease in the fourth 

quarter of 2011. Prices for prepared animal feeds led this 

upturn with a 2.5-percent advance from December to 

March, following a 6.1-percent decline in the previous 

quarter. The index for wheat flour also turned up, after 

declining in the 3-month period ended in December. 

Prices for fluid milk products decreased less in the first 

quarter of 2012 than they had in the final 3 months 

of 2011. Increases in the indexes for young chickens

and soft drinks accelerated in the first quarter of 2012. 

Conversely, prices for natural, processed, and imitation 

cheese moved down at a faster rate in the 3 months 

ended in March, falling 8.7 percent, compared with a 

2.2-percent decrease in the prior 3-month period. The 

index for shortening and cooking oil also fell more in the 

first quarter than in the prior 3 months. Prices for beef 

and veal turned down from December to March, after 

rising in the fourth quarter of 2011. 

The index for intermediate energy goods edged up 

0.1 percent from December to March, subsequent to 

moving down 0.1 percent in the previous quarter. For 

the 3 months ending in March, higher prices for gasoline, 

lubricating oil base stocks, and jet fuel outweighed lower 

prices for electric power, utility natural gas, and liquefied 

petroleum gas.

Crude goods

The PPI for crude materials for further processing fell 0.6 

percent in the 3 months ended March 2012, following a 

0.8-percent decline from September to December 2011. 

In the first quarter, lower prices for crude energy materials

outweighed higher prices for crude nonfood materials 

less energy and for crude foodstuffs and feedstuffs. (See 

chart 5.)

The index for crude energy materials turned down 7.4 

percent from December 2011 to March 2012, subsequent 

to a 4.7-percent advance for the 3 months ended in 

December. Crude petroleum prices declined 1.1 percent, 

following a 17.0-percent jump from September to 

December. The coal index also turned down, declining 5.5 

percent, after advancing 1.7 percent in the fourth quarter 

of 2011. Prices for natural gas dropped 26.6 percent in the 

Chart 5

SOURCE: U.S. Bureau of Labor Statistics.

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-3.5

4.7

-5.8

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5.0

-7.4

1.5

-9.0

-6.0

-3.0

0.0

3.0

6.0

9.0

Overall Food Energy Core

Percent change

Sept 2011 - Dec 2011 Dec 2011 - Mar 2012

SOURCE: U.S. Bureau of Labor Statistics.

Three-month percent change in PPI for overall, food, energy, and core crude goods, seasonally 

adjusted, fourth quarter 2011 and first quarter 2012
U.S. BUREAU OF LABOR STATISTICS | MAY 2012 7 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

first quarter of 2012, compared with a 14.7-percent decline 

in the prior 3-month period.

The index for crude nonfood materials less energy turned 

up 1.5 percent in the first quarter of 2012, after declining 

5.8 percent in the previous 3-month period. The index 

for nonferrous metal ores rose 4.1 percent following a 

7.7-percent decrease in the fourth quarter of 2011. From 

December to March, prices for nonferrous scrap, corn, 

soybeans, and for hides and skins moved up, after falling in 

the prior 3-month period. Prices for high grade wastepaper

declined less than in the September-to-December period. 

By contrast, the index for stainless and alloy steel scrap

turned down 8.9 percent in the first quarter of 2012, after 

rising 7.0 percent in the preceding 3 months. 

The index for crude foodstuffs and feedstuffs rose 5.0 

percent from December to March, subsequent to a 

3.5-percent decline for the 3 months ended in December. 

Prices for corn turned up 6.6 percent, following an 

18.9-percent drop in the fourth quarter of 2011. The indexes 

for soybeans, wheat, and russet potatoes also rose in the 

first quarter of 2012, after declining in the prior quarter. 

Prices for slaughter steers and heifers advanced more in the 

first quarter, while the index for raw milk declined less than 

in the September-to-December period. By contrast, prices 

for slaughter barrows and gilts turned down 6.6 percent, 

following a 4.6-percent gain in the fourth quarter of 2011. 

Trade industries

The PPI for the net output of total trade industries

increased 1.1 percent in the first quarter of 2012, following 

a 0.8-percent decline in the fourth quarter of 2011. 

(Trade indexes measure changes in margins received by 

wholesalers and retailers.) Leading this upturn, margins 

received by wholesale trade industries climbed 2.4 percent 

for the 3 months ended in March, after falling 2.0 percent 

in the prior quarter. The margin indexes for clothing and 

clothing accessories stores, grocery stores, and nondiscount department stores also moved up, following 

decreases in the fourth quarter. By contrast, margins 

received by discount department stores dropped 16.5 

percent from December to March, after rising 18.2 percent 

in the preceding quarter. The margin index for automotive 

parts and accessories stores also turned down, following an 

advance in the fourth quarter.

Transportation and warehousing industries

The PPI for transportation and warehousing industries

increased 2.6 percent for the 3 months ended in March, after 

moving up 0.6 percent in the fourth quarter of 2011. Over 30 

percent of this faster rate of advance can be traced to prices 

received by the industry for couriers and express delivery 

services, which rose 5.8 percent, following a 0.5-percent 

decline in the prior quarter. The indexes for scheduled 

passenger air transportation and truck transportation rose 

more than they had in the fourth quarter. The United States 

Postal Service increased prices 2.3 percent from December 

to March, after no change in the preceding quarter. 

Prices received by line-haul railroads and deep sea freight 

transporters turned up in the first quarter. In contrast, the 

index for the scheduled freight air transportation industry fell 

2.1 percent, after inching up 0.1 percent in the fourth quarter. 

Traditional service industries

The PPI for the net output of total traditional service 

industries advanced 0.6 percent for the 3 months ended in 

March, after edging down 0.2 percent in the final quarter 

of 2011. About 40 percent of this upturn is attributable to 

the index for securities, commodity contracts, and other 

financial investments and related activities, which climbed 

3.9 percent in the first quarter, following a 1.1-percent 

decrease in the preceding quarter. Prices received by the 

industries for passenger car rental and for non-casino hotels 

and motels also increased, after falling in the fourth quarter. 

The indexes for insurance carriers and related activities and 

for offices of lawyers rose more in the first quarter than in 

the previous quarter. In contrast, prices received by hospitals

inched up 0.3 percent from December to March, following a 

0.7-percent advance in the prior quarter. 

This BEYONDTHENUMBERS report was prepared by staff 

in the Division of Producer Prices and Price Indexes, Office of 

Prices and Living Conditions, U.S. Bureau of Labor Statistics. 

Email: ppi-info@bls.gov; telephone: (202) 691-7705.
BEYOND THENUMBERS PRICES AND SPENDING

U.S. BUREAU OF LABOR STATISTICS | MAY 2012 8 www.bls.gov

Notes

Information in this summary will be made available to 

sensory-impaired individuals upon request. Voice phone: 

(202) 691-5200. Federal Relay Service: 1 (800) 877-8339. 

This summary is in the public domain and may be 

reproduced without permission.

Suggested citation:

“How new fees are affecting the Producer Price Index 

for air travel,” Beyond the Numbers: Prices and Spending, 

vol.1, no. 2 (U.S. Bureau of Labor Statistics, May 2012), 

http://www.bls.gov/opub/btn/volume-1/how-newfees-are-affecting-the-producer-price-index-forair-travel.htm.

1. Airlines for America (A4A), “U.S. Airlines Post Lower Earnings in 2011 Due to Rising Costs,” February 28, 2012, 

www.airlines.org/Pages/news_2-28-2012.aspx. 

2. Bureau of Transportation Statistics, Air Carrier Financial: Schedule P-1.2, 

www.transtats.bts.gov/Tables.asp?DB_ID=135&DB_Name=Air. 

3. This calculation is an estimate of the PPI for scheduled passenger air transportation without baggage and cancellation fees and 

was done specifically for this paper. This calculation estimates the index level if the adjustments for baggage and cancellation 

fees were not applied.

4. Price movements for PPIs described in this summary include preliminary data for the months of December 2011 through March 

2012. All PPI data are recalculated 4 months after original publication, to reflect late data received from survey respondents. In 

addition, seasonally adjusted PPIs are recalculated on an annual basis for 5 years, to reflect more recent seasonal patterns.

5. Within the PPI stage-of-processing structure, indexes for goods other than foods and energy commonly are referred to as 

core indexes.

6. More highly processed intermediate and finished goods commonly exhibit price movements that are somewhat different 

from price movements for less-processed goods, because basic material costs tend to be a smaller portion of total costs 

for producers of more highly processed goods than for manufacturers of less-processed goods. Contracts and escalation 

agreements also can delay or mitigate the pass-through effect of early-stage price volatility at successive stages of processing.

7. To retrieve these data from the Bureau of Economic Analysis website, visit www.bea.gov/national/index.htm, find the 

subheading labeled “Supplemental Estimates,” then select the link titled “Motor vehicles (Excel),” and go to table 6 of this file. 

As of April 13, 2012, the following link takes the user directly to these data: www.bea.gov/national/xls/gap_hist.xls. 

8. Gross Domestic Product: Fourth Quarter and Annual 2011 (Third Estimate) Corporate Profits: Fourth Quarter and Annual 2011, BEA 12-11, 

Bureau of Economic Analysis, March 29, 2012, at www.bea.gov/newsreleases/national/gdp/2012/pdf/gdp4q11_3rd.pdf, table 1.

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http://www.bls.gov/opub/btn/archive.htm.