US Airlines Just Had An Astonishingly Good Quarter

Southwest AirlinesProfit for U.S. airlines was up 127% over last year in the third quater of 2013.

American passenger airlines reported a net profit of $3.2 billion in the third quarter of 2013, a 127% jump over the $1.4 billion they made in the third quarter of 2012.

That's according to the latest numbers from the Department of Transportation's Bureau of Transportation Statistics (BTS).

So what explains the change in profit margins, when jet fuel prices have dropped only slightly, and still gobble up 28% of airline spending?

It's thanks to ancillary fees - those annoying extra charges checking a bag, boarding early, or getting some extra legroom. They're an enormous, key source of revenue, and they're the reason the global airline industry is profitable.

Only baggage fees and reservation change fees are reported to the BTS as discrete charges, so we don't know how much airlines made off things like seating assignments and onboard food sales.

While third quarter revenue from baggage fees dropped between 2012 and 2013 (from $924 million to $879 million), a spike in reservation fee charges made up for it. In the third quarter of 2012, U.S. carriers pulled in $652 million from reservation cancellation and change fees. In the Q3 2013, those were worth $735 million.

The good news isn't contained to the U.S. The latest financial outlook from the International Air Transport Association predicts the global airline industry will make an all-time high net profit of $19.7 billion in 2014.