On Baggage Fees

One thing seems hard-wired into people's brains: once someone has been given something for free, he or she will refuse to pay for it ever again. On what planet is it unreasonable for airlines to charge for luggage? President Carter may have deregulated the airlines, but some of the expectations from the old times live on.

I have sat still while people complain. But I must link to two great articles today. First, ThreeSources friend Perry Eidlebus suggests that George Mason University Professor Mark Katz contacts his school's storied economics department for a little refresher course. In a CSMonitor,com piece, Katz warns "Flying with luggage this summer? It's going to cost you."

Perry references a post he wrote before:

Because I am a rational person who understands that I'm not being "forced," my "hide" doesn't "chap" at all at what many airlines are doing. American Airlines will soon start charging economy passengers $15 for the first checked bag, unless you bought the full-price fare, but nobody's being forced into it. What it really is is a $15 across-the-board increase for economy passengers who buy discounted tickets, but with a $15 discount for bringing only carry-on baggage. Take the difference between 50 and 15 pounds, multiply it by a few hundred people, and that saves fuel.

Also well said is a WSJ Editorial from Holman Jenkins, Jr.

Smart businesses ask themselves how they can make themselves more popular with customers by "unbundling" the goods or services they provide. Burger joints charge extra for cheese, but not usually for lettuce and tomato. Yet fairness is surely served by letting haters of lettuce and tomato escape the burden of subsidizing those who love them?

Never mind. No business is more loathed than the airlines right now, even as they do their customers the unbundling favor. Carriers are slicing away at services to create options for the most price-sensitive fliers to avoid services they don't want to pay for: checked luggage, meals, pillows and blankets.

Jenkins says that not even unbundling will help the carriers unless the economics of fuel or fares change pretty drastically -- ending his piece:

Without a decline in fuel prices, massive airline bankruptcies are almost certainly coming. About the only suspense is who will be in the White House when they hit.

I'm reminded of CNBC madman-at-large Jim Cramer. Cramer has been up and down on every sector and every individual stock in the Wilshire 5000, but he has consistently warned investors to avoid the airlines. Cramer says the model is broken and one just cannot make money in that industry. Individual carriers will see some profits and growth for a while, but he is right than none has built a lasting business model (though I'm thinking a worldwide RyanAir might make it...)

Tough business. Makes jazz guitar look pretty good.

Economics and Markets Posted by jk at June 18, 2008 11:43 AM