Bag-fee economics, yet again

(Previously here and here.)

It turns out that most people don’t like being nickeled-and-dimed by airlines, and airlines that signal their unwillingness to pinch every penny get more customers.  Here’s Megan McArdle on the subject:

Push another frame on the stack; we’re into the third level of post-excerpting recursion.  Here’s an excerpt from the top-level article*:

Baggage fees are the kind of shortsighted things that are killing us,” the top U.S. executive of a European airline told me recently. “The accountants we have are great at tracking the ‘ancillary’ revenue we generate whenever we invent something like a baggage charge. But they have absolutely no way to match that against our potential overall revenue exposure if travelers book away from us. And no one holds them accountable for their one-way accounting. It’s a scandal.”

First-author Joe Brancatelli (and first-recurser Felix Salmon) argue that teh ebil short-sighted airlines have gleefully embraced the apparent profit centre of charging passengers for their checked bags, while blithely ignoring the flight (heh!) of those obstreperous and offended passengers to other, more caring airlines like Southwest and, um, JetBlue.

Megan replies that the first article assumes causation where there’s only a dubious correlation:

But this article suffers from a similar failure to control for confounding factors.  Essentially his argument is that the airlines that made the most from bag fees suffered the biggest declines in revenue.  But of course, causation might go the other way:  the airlines losing the most revenue might be the ones that are most gung-ho about baggage fees.

For my own part, I see “free bag” policies as an indication that a given airline is willing to fuck bagless passengers for the benefit of the other passengers.  This might be an overall win for the airline, of course, but it’s a disincentive for me.


* That link is the internet equivalent of a longjmp(3) call.  Goddamn I’m a nerd.

6 Responses to “Bag-fee economics, yet again”

  1. 1 Not Sure
    October 15, 2010 at 19:22

    “For my own part, I see “free bag” policies as an indication that a given airline is willing to fuck bagless passengers for the benefit of the other passengers.”

    That’s kind of what I was thinking. Whenever I see that Southwest “Bags Fly Free” ad, I wonder how they managed to suspend the laws of physics in order to get that to work.

    I mean- you’re not going to tell me that they’re charging me for my bag, but just not saying how much, right?

    • October 16, 2010 at 21:58

      Southwest: Bags Fly Free On Someone Else’s Dime.

      Y’know, if people traveling with bags on “bags-fly-free” airlines felt the obligation to buy drinks for people traveling without, I’d be perfectly okay with the idea. Noblesse oblige and all that.

  2. October 16, 2010 at 06:27

    One baggage problem can now be solved as you can check before you fly where you can buy your duty free on arrival at the website of the same name.

  3. 5 aczarnowski
    October 16, 2010 at 09:18

    This is an example where technically and practically correct are different. While charging for bags is the technically correct way, the ancillary factors of security preventing one from bring perfectly reasonably and necessary things like razors with me and bad checked service handling (bags not making it) twists the field.

    Until I can bring my leatherman with me on the flight (and preferably by handgun) and until there’s some recourse for lost bags past “you have no recourse” paying them extra for the privilege of getting screwed over is not going to work in their favor from a customer relations perspective. Like their chosen route impacting fuel charges which I don’t have any control over, I don’t have control over my baggage handling today and so the technical/practical mis-mesh.

    This is rattled off under time pressure and a bit too much caffeine. Hopefully I don’t have to come back later to unmake myself the idiot…

    • October 16, 2010 at 21:55

      Yeah, I basically agree with you. The bag-fee issue is basically an economics-of-scale problem as far as I can tell — if I actually knew shit-all about econ I’d probably be able to speak learnedly about Coase here, but I don’t and can’t so this is what you get.

      The PR disconnect you mention is, to my mind at least, similar to what Russ Roberts says about “the job not created” by ultra-Keynesian stimulus packages. It’s easy to point to things that bag fees do poorly (“I’m traveling with a single bag; that’s not such a big deal, why should I have to pay extra for it?”), while things that incorporated bag costs (“no fees”) do well are hard to see. There aren’t many people taking Delta these days who gush to their friends about how they paid $15 less for their airfare than they would have if Delta had allowed them one no-fee piece of luggage.

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