Wednesday, May 21, 2008

I see a trend starting...

In another sign of the current state of the airline industry, American Airlines today announced it would start charging extra for any checked luggage, as of June 15. This comes as no surprise, given the surging fuel prices and decreased demand for air travel facing the industry.

I can see why people hate this idea. Shareholders, of which I am one, apparently didn’t take well to the news and caused the stock price of parent company AMR to drop about 20% today. The Association of Flight Attendants president also voiced concerns over the safety issues and congestion that will result from more people carrying on their luggage. My mother got hit by someone’s large carry-on and now believes airlines should basically forbid carry-on luggage. Ultimately, if more people check all their luggage, security check-in will also be slower since more people will probably try to carry on forbidden amounts of liquids. At the same time, initial check-in times with ticket agents should be shortened since agents will handle a lighter load of luggage.

However, I recognize that airlines have to pull in more revenue one way or another and I think ala carte fees (which now-defunct discount airline Skybus used extensively) make the most sense. Instead of charging every passenger for the costs incurred by some passengers, I prefer to only pay for those costs I incur myself. I believe if given the choice of keeping my flight cheaper or getting more “conveniences” (more leg room, food on the plane, checked bags, curbside check-in), I can and will choose to keep my costs down. I want that kind of choice these kinds of fees allow me to do that.


(In a microeconomics class I took this past semester I learned about price discrimination, which is basically the same concept as the ala carte fees mentioned above. Price discrimination means charging different people different prices. For instance, airlines charge business travelers more than leisure travelers for their flights by charging more for tickets booked closer to the flight and making flights which require a Saturday night stay cheaper. Price discrimination helps some people while hurting others. With airlines, business travelers pay a higher price than they would if all seats cost the same price. Leisure travelers benefit from the higher prices paid by business travelers by paying lower prices than they would if all seats were priced the same. When it comes to charging a fee per checked bag, those passengers who check bags are worse off (compared to an across-the-board fee imposed on all passengers instead of a checked bag fee) than passengers who do not check bags. Essentially, passengers who don’t check bags therefore benefit from the higher prices paid by those checking bags. I put myself in the leisure traveler and no checked bag (or maybe just one checked bag) traveler, so I see myself benefiting from the price discrimination here.)

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