

Airline baggage fees lead to lower revenue - petewarden
http://www.portfolio.com/views/columns/seat-2B/2009/09/29/baggage-fees-hurting-airlines-bottom-line/

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storborg
The general reaction I see to airline baggage fees is that people who
frequently travel with no checked bags don't care (or think it's a good
thing), whereas people who travel with checked bags are upset. That much is
obvious, and it's kind of net neutral overall.

However, I think there is a far worse side effect of the change in pricing
structure. The side effect is that _nobody_ wants to check a bag, so the
volume of baggage actually entering the plane's cabin has significantly
increased. It makes boarding take longer, makes everything more crowded, and
in general it's a huge hassle for everyone, including the luggageless
travelers.

For that reason, I try to avoid airlines that charge baggage fees, even when I
am flying with no bags at all.

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aidenn0
There's an obvious selection bias here. Airlines that aren't facing a revenue
decline don't need to charge baggage fees.

~~~
petewarden
Your argument is that the airlines had a prescient view that their revenues
would decline relative to their competitors, and before that happened
implemented baggage fees to partially offset that fall.

With natural experiments like this it's painful to disentangle cause and
effect, but with the timing (fees, followed by revenue declines) I'm inclined
to see the author's explanation of fees being a more likely cause.

~~~
aidenn0
All large businesses try to predict their future revenue. An airline that
predicts a future drop in revenue is more likely to add baggage fees to boost
revenue.

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petesalty
I've done this before, even if ticket prices are a little higher but there are
no fees other than what I pay for initially. I hate getting to the airport and
getting nickled and dimed at the check-in counter. There just seems to be
something wrong with that.

~~~
emmett
What's wrong is that the total cost isn't being disclosed up front. It's just
like advertising "$10 iPod" and then charging $200 in shipping and handling.

~~~
Alex63
Since the fees are advertised (though not included in the fare), I don't think
you can say that the total cost isn't being disclosed. Anyone who has traveled
since early 2008 is presumably factoring the baggage fees into the cost of
their travel (as I do).

What's really irritating (to me) is passengers who are using advanced check-in
so they can go directly to the gate -- with their oversize bag in tow. Once
there, they are told they will have to gate check the bag but most airlines
don't seem to be charging for gate checked bags. I don't care about the
airlines losing the revenue, but I do care about the hold-ups and hassles it
causes during boarding.

~~~
petesalty
Actually, I kind of do think it's like the $10 IPod scam - yes, the fees are
disclosed, on another page, in small print. It's not like it's right there
along with the price "Only $50 each way, and, oh yeah, and on top of this,
you'll be paying $25 per checked bag". Yes I know we should probably all be
aware of it, but it keeps going up.

I wonder how long it'll be before they start charging "boarding pass handling
fees", "seat cleaning fees", "oxygen fees", etc.

~~~
tomsaffell
> _..before they start charging "boarding pass handling fees".._

GBP 40 for turning up to a Ryanair flight without a boarding pass:
"[http://www.guardian.co.uk/money/2009/may/14/ryanair-
online-c...](http://www.guardian.co.uk/money/2009/may/14/ryanair-online-check-
in)

And it's GBP 5 to check-in online at home:
<http://www.ryanair.com/en/questions/table-of-fees>

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chrisgoodrich
I'm very surprised that the airline execs actually thought this would help
revenue. The demand for travel is extremely elastic, therefore any increase in
the costs of travel is going to cause a decrease in demand.

~~~
Zak
Demand, in economics is represented as a graph of purchases versus price. By
definition, a change in price does not change demand; it simply represents a
different point on the demand curve.

What _does_ change demand is customer perception that they're being ripped
off. A $515 ticket and a $500 ticket are fairly close on the demand curve and
probably don't represent a huge difference in sales. A $500 ticket plus a $15
checked bag fee is perceived by the customer as an attempt to conceal the true
cost of the ticket.

~~~
chrisgoodrich
Yes, I should have been more thorough in proofing my post. Demand doesn't
change because of elasticity; the quantity demanded changes.

If calculated, they may not have been able to see the full effect of this
change as the calculations (like you state) do not take into account customer
perception. Although not seemingly a large change, the $15 change in price can
make a huge impact in such highly elastic markets.

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oldgregg
This reminds me of companies who spam their customer email lists... They only
look at the immediate results without being accountable for how many people
are tuning you out.

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ShabbyDoo
Why do people have a problem with being charged more for using more services?
Wouldn't a college kid flying home for the weekend with only a backpack like
to pay less than somebody taking a two week trip with three large suitcases?

Let's presume that the airlines will price in a profit optimizing way and
that, in the long term, competition will limit their overall take. So,
compared to a model where all passengers pay an all-inclusive fee, those using
fewer services will pay less under the a-la-carte plan.

We don't think that hotels should be required to include dinner in the cost of
the room, but we get mad when the airline charges $5 for an in-flight meal.
We're happy to pay per-lb to ship stuff via UPS, but we don't want to pay per-
lb for the bags we check? I don't understand.

~~~
chromatic
> We're happy to pay per-lb to ship stuff via UPS, but we don't want to pay
> per-lb for the bags we check?

I went on a trip recently. The combined weight of me and my luggage was
perhaps 225 pounds. The combined weight of the young lady standing in line
behind me and her luggage was probably 165 pounds. She had to pay
substantially more to check two bags instead of one.

As I understand the reasoning, luggage prices increased due to the fuel cost
increase of a couple of years ago. Yet somehow me being a foot taller,
weighing 70 pounds more, and checking only one bag is cheaper for the airline?
I don't understand it.

~~~
lutorm
Yes! This annoys me to no end. I would be happy to pay per lb of transported
goods, including me and my bag. There is no cost difference to the airline if
me bag is 5lb over the limit or if I weighed 5lb more. There should be no cost
difference either!

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wrs
I had thought the point of these extra fees was to make it more difficult to
compare pricing between airlines. Add-on fees that don't get displayed with
the fare make the actual price hard to see, which is good when they're all
providing essentially equivalent goods. It's like online stores that all
display the same price for an item but have wildly different shipping fees.

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eli
Correlation != causation.

Failing airlines added new fees and then continued to fail. Not sure you can
blame the fees for that.

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ahi
I would expect some hits to profit margin as well. I'll take an airline with a
baggage fee if I don't have baggage, typically a short flight / overnight
trip. I'll take Southwest for long haul flights when I typically have luggage.
The long haul flights have higher margins than the shorter commuter/feeder
flights.

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gaborcselle
Correlation is not causation.

The two airlines that still don't charge for luggage (Southwest and JetBlue)
are the ones that have no union workforce, no pension liabilities, and in the
case of JetBlue, new and fuel-sipping planes.

~~~
ryanwaggoner
But all of those are impacts on expenses, and therefore profits. This article
is about a decline in revenue. Yes, you can make the case that the things you
mention indirectly relate to people choosing Southwest and JetBlue over the
other carriers, but I think that's a stretch.

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fragmede

      [$669.5 million is] an attention-grabbing 275 percent 
      increase from the second quarter of 2008.
    

Anyone else get annoyed by this very useless factoid from the very first
paragraph?

\--

The movie industry has the very same problem. This summer's blockbuster movie
is created. Unfortunately, screenings reveal that the movie is terrible and no
one actually wants to see it. So what does the industry do? Spend millions on
advertising, hoping for a very strong first weekend showing.

And, like the airlines in the story, they wonder why (Avatar aside) sales are
falling flat.

~~~
lutorm
To be fair, the article ends by saying how useless that factoid is.

