May 24, 2008 — American Airlines' new charge for checked baggage could hobble the Virgin Islands economy, which depends on duty-free liquor sales for a substantial part of its revenue.
American said this week that beginning June 15, it will charge $15 for a first bag and $25 for a second bag each way. The Transportation Security Administration (TSA) prohibits liquor boxes as carry-on luggage.
The airline’s new policy comes only two weeks after many major carriers, including American, began charging $25 each way for checking a second bag. According to the New York Times, other major domestic carriers said this week they were studying whether to match the fee. Once one airline raises fares or adds new fees, other major carriers often follow depending on how consumers react.
But reaction in the territory was unequivocal. Community activist and businesswoman Maria Ferreras said Friday, "It's cutting us off at the knees — it's extremely detrimental. We are a tourism destination. Less liquor sales is less gross receipt taxes, it's people being laid off. The extra $15 or $25 is enough to make people decide it isn't worth it."
Tourism Commissioner Beverly Nicholson Doty said, "We are doing our best to establish a waiver for the territory, however, this is something nationwide, not isolated to us. It is a significant concern because of the impact on rum sales," she said.
The Virgin Islands depends on rum tax rebates, which range between $70 million to $80 million, from the federal government on each proof gallon of rum sold in the states. Those proceeds back close to $600 in government bonds.
Minette Velez, American Airlines Caribbean communications manager, said the charge is permanent. "A few days ago, oil was around $120 a barrel," she said. "It's more than $130 per barrel today. It's a blow for us. It impacts the industry, and we are very competitive."
The Times also noted that American has raised fares 14 times since mid-April to offset higher costs.
Gerard Arpey, CEO of American's parent company AMR, said in a statement, "The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy."
Customers who purchase domestic economy class tickets on or after May 12, 2008, but before June 15, 2008, may check one bag for free and check a second bag for $25 each way. Customers who purchase domestic economy class tickets on or after June 15, 2008 will be charged $15 each way for the first checked bag and $25 each way for the second checked bag. Carry-on luggage remains the same, with one 40-pound bag at no charge.
There are some exceptions to the charges, such as travelers who purchase full-fare tickets in economy class and those buying business or first class tickets. A complete list can be found in the American Airlines newsletter.
"We already recognized the challenges when the TSA prohibited carry-on liquor," Doty said. "I spoke to American yesterday, and it doesn't look like we'll be able to get a waiver. What we have to do now is to help mitigate the situation. We already have a really aggressive summer promotion in place and the hotels on St. Croix are working on a promotion."
Lisa Hamilton, St. Thomas-St. John Hotel Association president, and executive director of the St. Croix Hotel Association, said the organizations are working on an initiative to combat the increase, but she declined to reveal details.
Sebastiano Paiewonsky Cassinelli was brief and to the point. The vice president of A. H. Riise, the territory's largest and oldest duty-free retailer, said, "The American Airlines baggage charge, coupled with the liquid ban, makes for a very challenging retail environment, and hurts the Virgin Islands' image for duty-free shopping."
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