The Brilliance of Bag-Check Fees

It's been a while since most airlines started charging fees for checked baggage. The first time I flew since this started, I had forgotten about it and was a bit surprised when the kiosk prompted me for an extra $15. I had become used to the idea of checking luggage, since 9/11, as the security checks made it impossible to carry even a tube of toothpaste. The obvious response to that issue was, "just check it" and avoid the hassle of dragging bags through the airport in the first place. I think everyone else had the same idea, as I hardly remember seeing people with carry-on luggage.

Now things have changed. The Financial Crisis has caused many companies, including the airlines, to squeeze every dollar they can out of anywhere they can. The bag check fees are one way to do it, and like many people my initial reaction was "of course, they have to get as much money out of you as they can." But then I got on the plane, looked around, and realized that's only part of the story.

People generally have this thing about "principles", and when you've already paid a few $100s for a seat on the plane, asking an extra $15 for luggage seems like an insult. Heck, it is an insult! Surely they know you're going to have at least one bag, and account for that in the price, don't they? It's enough to make you want to forget checking bags altogether and carry-on instead... and that is where the true purpose of the fees really comes from.

Every time a plane flies somewhere it costs about the same amount of money. The plane uses about the same amount of fuel, and the airlines have to pay the salaries of the pilots, flight crew, baggage handlers, etc...; they also have to pay airport fees, and of course, taxes. There are few variable factors, with the main one being the number of passengers on the plane. Because the total cost of the flight is not evenly split between passengers, an airline could lose money if there are not enough people on a flight. To avoid this, airlines made sure planes are full by reducing the number of flights, leading to a full plane and more efficient and profitable flight.

Except, someone apparently realized, that even though the planes were full of people, the planes were not full. All of the seats may have been sold, but most of these people were also checking bags, which meant that the storage space in the passenger cabin was not being fully used. Every square foot of space on a plane is valuable, so they had to come up with a way to encourage people to carry-on their bags instead of checking them.

The bag-check fee is exactly that -- encouragement to carry-on instead of checking. This solution is a perfect example of using capitalism to achieve a goal, instead of making a rule or regulation and forcing people to follow it. Everyone still has the choice to check bags, but choosing to do so has a higher cost than not. And they've taken the idea further by charging higher fees for additional checked bags, giving an additional incentive to pack light and save more space.

Now that they have this extra space in the cargo hold, what do they do with it? They sell it. Not only do airlines sell space to people, but also to other companies who need to ship stuff. Companies like Fedex and UPS might buy this space, as well as private shipping companies. Moving the luggage out of the cargo hold gives airlines more space to sell, and an even bigger chance to make the flight more efficient and profitable. How many overnight letters do you think they can fit in the space of one piece of luggage? How much do you think they charge for each one? A lot more than $15, that's for sure.

Where does this leave the consumer? Well, now the passenger compartment is cramped and full of luggage, with no space above and a bag or two crammed in under your feet. The flights seem less comfortable now, but at least they're able to get you where you want to go. Hopefully the airlines are making a better profit from each flight, which means they'll be there the next time you need them. Is it ideal? No, but it's a pure example of capitalism working well -- something the big banks might want to pay attention to these days.

P.S. All this time when the overhead bin was empty, the airlines were missing out on potential for additional revenue. I hope that whoever came up with this idea got their bonus this year!