Unintended Consequences … of Airline Baggage Charges
Those days are long gone when an economy class passenger could check-in two pieces of luggage for free when flying a commercial airline in the United States. Almost all major airlines now charge $25 or more for each check-in piece of baggage (for example — see baggage rules for United Airlines here: http://www.united.com/page/article/0,6867,52481,00.html). By the way, one notable exception to this policy is Southwest Airlines – they love baggage (see: http://www.youtube.com/watch?v=Pl16hPa1qkQ)!
So why have all major airlines started charging for checked-in baggage? Clearly one motivation behind the new baggage policy is cost reduction due to reduced handing of luggage by the ground staff. Furthermore, if passengers start carrying less baggage then the net weight of an airplane will be reduced leading to lower fuel costs. On the other hand, if passengers continue to carry the same amount of baggage as before then the airline gets additional revenue due to checked-in baggage charges (see: http://blogs.wsj.com/middleseat/2010/05/06/ticket-change-fees-surpass-baggage-charges-at-some-airlines/) for additional details. Win, win both ways for the airlines – or maybe not.
Well, no action goes without reaction, and sometimes they cause many unintended consequences. So let’s discuss some consequences of checked-in baggage fee policy:
Marketplace Effects:
By charging a specific price for every component of a service, the airlines may be converting their market offerings from a “service” to more like a “commodity” and less like an “experience” (see Figure 3.9, page 81 from the textbook inserted below). Past research suggests that such a move will make it harder for airlines to differentiate themselves from each other ultimately leading them to charge only market prices and not premium prices.
Operational Effects:
Since checked-in baggage is not free, passengers are more likely to carry the maximum-size permitted baggage with them as a carry-on luggage. However the storage space in a passenger cabin typically does not have enough capacity to store high volume of luggage carried by majority of passengers. Therefore, during the busy periods and in nearly full-flights, this shortage of capacity requires that the airline check-in the excess baggage (for free!) during the last phase of the passenger boarding process. Such last-min onboard baggage checking means a lot of manual handing of luggage by airline personal in a short amount of time. It is quite possible that during the busy period such last-min loading of luggage may lead to flight delays. Furthermore, some of the last minute luggage may not get loaded on the airplane on time — leading to additional headaches for the passenger and additional costs for the airlines (see http://online.wsj.com/article/SB10001424052748704423504575211960765813420.html?KEYWORDS=airline+baggage+#articleTabs%3Darticle) for a related discussion.
What Next?
Some recent news reports had suggested that now airlines will start charging for carry-on luggage too! Well, this new policy will solve some of the operational problems associated with passengers carrying too much carry-on luggage! At the same time, it will make airlines even more-so like a commodity product. Thankfully, many airlines have decided not to implement such policy (see — http://www.nytimes.com/2010/04/19/business/19bags.html?src=busln).
