Wednesday, July 14, 2010

Airline Bag Fees

Recently I attended the Western Economic Association annual conference in Portland OR. It was a good conference and was able to hear some excellent papers on sports economics. As I had to fly to get there, I checked my luggage and was charged a fee to have it go along with me. In the good ole days, bags fly free; but no more. In an interesting article on luggage in the airline industry, we see that as the price of checked bags increases, the number of checked bags decreases - which is exactly what we would expect given the law of demand. Additionally, from the airlines perspective, they are now able to do business and think of bags as a revenue driver, instead of a cost driver. Of course some passengers try to avoid the cost of the bags - carrying them on instead of checking them, and that airline personnel injuries are moving from baggage handlers to flight attendants, this is exactly how a profit-maximizing organization should react to adding value to their customers - charge them for some of the value they add. Of course the additional profits are also well received by airlines.

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