They don't. It seems ridiculous that these bag fees were created to help the airlines get over the high fuel prices. Now that the price of fuel has gone down, why do we still have them?
It can depend on the airlines. Qantas & Virgin Blue in Australia generally had a seperate fuel levy which has now dropped after the fuel costs dropped.
Jetstar have different prices depends if you've got check in luaggage.
Fuel prices are the biggest headache for the airlines because they do contracts for up to a year in advance and sometimes this can bite them hard. Air Canada is on the verge of bankruptcy (again) and the fuel costs is the biggest factor because they jumped the wrong.
Last time their contracts were up for renewal was when the prices were way up high last year. AC hedged on it going higher and locked in a large chunk of their fuel. Problem for them is the price dropped as we all know to half was it was. factor in drop in passenger numbers but more imporantly a drop in first class passeners are they are hurting.
More and more Airlines will take aircraft out of service to save costs (so the yards in the Arizona Desert will fill pretty quickly).