Wednesday, January 13, 2010

Check Your Attitude

No commenter has ever gotten sore at me, which suggests I'm an affable guy, writing about safe subjects. I try to leave out politics and whining, and most people like that. But in this post, I will depart from my usual lyrical musings and try diligently to torque someone off. 

Before I go there, I hope you have read the comments about the Dreamliner in the last post. Some are funny, and others informative and insightful.

I think it's time to get real about this uproar going on concerning airlines' charging for checked bags. The major carriers―excluding the one that only flies domestic-only B737s―are now charging between $15 and $25 for the first checked bag, which may not exceed 50 pounds. NOT FAIR! you say. Until recently you have always been able to check your bag free. That must be a birthright. I decided to quantify the issue and see if there was a different viable perspective.

Consider this: You have a 50 pound bag you want to ship from Atlanta to Los Angeles. Here are your most popular options. If you pay Delta $25, the bag will ride in the same plane with you and will arrive in Los Angeles as you arrive. WOAH! You cry. They might lose my bag! Yes, they might. According to the latest DOT data, you have a one tenth of one percent chance (.01%) that your bag will not appear on the carousel but will be delivered to the door of your choice later on the day of your arrival or the next day. 
Lets assume you neither want to pay that outrageous amount
nor take such a colossal risk of losing your bag for one day. So, you decide to ship it via another means. UPS is ready to take it for the casual sum of
$308. TOO MUCH! you decry. You call Fedex and find they will gladly fly it to LA for you for only $181, but you'll have to reduce its weight down to 30 pounds. Oh yes, and both of them will deliver it to your door―the next day. 

Of course there is always that stalwart standby: Greyhound bus. They'll get it there in 2 days, 2 hours, and 20 minutes, for only $57.85. Not bad.

Now, let's take this a step further. You are interested in shipping not your bag, but your body, in it present status, from ATL to LAX. What will that set you back? Here are a few options:

Greyhound will get you there in the aforementioned 2 days, 2 hours and 20 minutes for $219 ($167 if you get a non-refundable fare.) The good news: They don't charge for your accompanied bag! And the camaraderie among your fellow riders is unsurpassed.

Amtrak—that's the government-run choo-choo―will get you there in 22 hours for only $414 (That's in a coach seat. Add $283 if you want a place to sleep.)

The nation's premier low-cost carrier does not operate out of Atlanta, so you would consider Delta for its non-stop service to LAX. They will get you there in 4 hours and 30 minutes for $477. But don't forget to budget an extra 25 bucks for that checked bag. Scoundrels.
P.s. I don't work for Delta.


Mark said...

All I can say is bravo, great post! Sorry you didn't torque me off!

scott said...

This is a gross injustice. It's obvious this is price gouging. The only fair way to handle this issue is to charge the rich 1st class customers $200 a bag and pay their fair share. But the greedy money hungry airlines won't do whats right.

Brian said...

Alan, I don't think any reasonable person could quibble with what you write. But I do think the view is too narrow.

The price wars brought ticket prices to an unsustainable level. To make up that lost revenue, there's been surcharge after surcharge. The baggage fee is just one part of that.

No matter what kind of fee was the last to be tacked on, people would have been outraged. It's not the baggage fee itself; it's just the latest in a line of add-ons. The sum is far greater than any individual part.

What you say, on its face, is spot-on. But I don't think you can pull out one scenario in this brouhaha and say it's indicative of the whole.

That being said, you do a wonderful job with this blog. I love reading it, and keep up the good work!

Anonymous said...

The reason I don't like this idea is because I always avoid checking luggage if I can possibly help it. (It's insecure, and I hate waiting around to pick it up.) This policy seems to me likely to get more people attempting to go with carry-on baggage only (often outside of the limits, I'm sure), and thus more likely to get me forced to check my single bag (which fits under an economy class seat).

But maybe I'll be lucky, and nothing will change for me.

Other than that, a charge for bags seems not entirely unreasonable; I'd have no real objection to paying $12.50 for my (25 lb.) carry-on bag.

Brian: that's a good point about getting in the surcharges anywhere you can. I'd originally thought of this more in terms of making the weight you carry pay for the fuel you burn. Were it really that, I'd find it pretty frustrating that, assuming I was forced to check my bag, 175 lb. me and 25 lb. back pays the same as the 225 lb. guy with the 50 lb. bag in the seat next to me.

As far as charging the first-class passengers more per bag, why? They're already paying a huge amount more anyway (many times what an economy class passenger pays), and easily covering their costs. It's the cheap economy class seats that are killing the airlines.

(Last I checked, for NYC-Tokyo four business class seats took about the same floor area as nine economy-class seats. With less weight, they brought in about $20,000 in revenue, whereas the economy-class group of seats brought in about $7000 in revenue and cost more in Jet fuel.)

Anonymous said...

Bravo on another great blog. I'd weigh each passenger and their carry-on bag at the check-in counter to determine how much total weight is being flown from point A to B. If that weight exceeds the FAA standard weight then the passenger can either pay a surcharge or reduce the weight of their carry-on bag.

Give the passengers a free beverage of their choice and unlimited cookies if they and their luggage don’t exceed the FAA standard weight.

It’s all about carrying weight from point A to point B. And it’s about how much the crew is paid. So, how about paying the crew minimum wages and passing the hat for tips as each passenger deplanes? Perhaps the softer the landing or prettier smiling faces on the flight attendants would equal better tips? No, how about selling discount tickets if you gamble a minimum amount of money using the back-of-your-seat casino? And the crew gets a cut of the profits! In-flight massages? How about having the Captain perform marriage ceremonies during the cruise portion of flight? How about selling the unserved first class meals at a discount or at auction to the passengers in coach? And what about those open bottles of wine from first class that get dumped? Sell that too. The closer to landing you get the cheaper a glass of whatever’s left?

GTG, the flight attendants are calling from the back! Where did that magenta line go? Captain, remeber you're in command here.

JP said...

Greed and bogus economic policy drives most airline problems.

Airlines drove fares down to go after market share regardless of profitability ("we'll make it up in volume") and you can't help that the average Joe traveler buys the lowest price ticket. Carriers that didn't have a cost structure to match their prices have been allowed to survive too long by US bankruptcy laws, and have consequentially stuck it to their employees, shareholders, and lenders instead of dying a quick death like in the "real" business world.

Utilities and airlines have the highest cost of capital of any business. According to economic theory, no one in their right mind would spend the capital to start an airline or a utility without some guarantee of steady (and perhaps even low-profit) revenue. Utilities are regulated and/or state owned because otherwise we'd have no electricity, water, or natural gas distribution systems in most of the country.

Makes you think we went wrong somewhere with airline deregulation...

Excellent blog...keep it up.

Lakotahope said...

There's always SouthWest Airlines. Bags fly for free.

Otherwise, the airlines should have found a way to bury the costs into the ticket price and only for one bag. People with only carry on would still help the airlines by paying the "hidden fee". Or, help subsidized a passenger carrying more than one bag down below.

Anonymous said...

JP, you're getting into some interesting territory there.

I suspect you did not mean that airlines have the highest cost of capital (why would the cost of borrowing a dollar for them be more than for, say, companies than can sell only junk bonds?). I do believe you meant that they have some of the highest capital requirements of any industry.

As far as the falling prices, you're right that customers will often take the lowest price offered in a commodity market and, aside from perhaps Southwest, airline seats are considered a commodity. There's nothing to be done about that.

But you've missed the key factor on the other side: spoilage. As soon as an aircraft closes its doors and starts the pushback, any empty seats convert from potential revenue to zero revenue, yet the cost to the airline of everything but fuel remains the same. Therefore, additional seats on an aircraft, once it's going to fly anyway, have a very low marginal cost: that of the fuel alone. If the additional fuel for a passenger on a 1000 mile flight costs somewhere in the vicinity of $45, the airline would be better off selling a ticket for almost anything over that price than they would leaving the seat empty. (This marginal cost is obviously highly variable--I'm going with a 50 passenger-mile per gallon figure here, for which I unfortunately cannot find a reference. However, regardless of the exact figures, the principle is clear.)

Of course, there are also substantial fixed costs (fuel to move the aircraft itself, crew, etc.) to be covered, so not every seat can be sold at little more than its marginal cost. This is the reason you see such a large spread in prices for essentially the same service. It's not unusual at all for an economy-class passenger from New York to Tokyo to have paid $800 for his ticket, while another passenger sitting in the same cabin and getting the same service paid $4000.

Johnny said...

Ehem.... one tenth of one percent would be 0.1% in my book :-)

I really like your blog, Alan. You share a very nice dry sense of humor with Dave on FL390

Regards from a rainy, ex-snowy England

Ben said...

Of course, the side effect of charging for baggage is that the cabin crew now has to find space for it all.

It's amazing how many people bring on 3 or 4 items these days, or large suitcases that have no hope in fitting in an overhead bin, all to save the checked baggage fee.

I gather no one wants to be in charge of telling the passengers their bag is too large. Based simply on logistics, TSA should be doing it, since by the time it gets past security things get much more complicated. But I'm not holding my breath on that one....

Anonymous said...

I am a Commercial Pilot who agrees with your point of view. What passengers don't realize is that they are already getting a heck of a deal for their tickets because airlines keep undercutting each other. Not to mention the fact that pilots education/training, airplanes, maintenance, etc. cost more than most people realize...especially compared to ANY other means of transportation that take much longer enroute I might add (which is obvious).

The point is, don't complain about the luggage because you are already paying too cheap of a price for the ticket. An airline like ANY other company/government can be run more efficiently, but they are not in the red because their prices are too high...they are too low.

Marc Cote said...

Maybe, just maybe, if the American consumer would realize that there are costs incurred in the production of the products and services that they buy then maybe, just maybe, they would not bitch about paying a fair price for such. I think airlines should, like any other business, charge enough to cover their costs plus a modest profit. That being said, I have no flipping idea how the airlines are going to figure out how to "farm out" the costs of flying like manufacturing has done in the US. If they can figure that out, then we can all listen to the average American complain about flimsy the seats are in the planes, or how an onboard 4 ounces of soda is $15, or other such nonsense. Wake up America and pay a reasonable price for what you purchase and quit whining about it.

Anonymous said...

That is unfortunately a rather naive economic viewpoint, Marc. Getting rid of differential pricing will only cut off the bottom portion of the demand curve, and the airlines will make less money yet.

Consider a hypothetical route with an aircraft with three passenger seats that costs $500 plus $100 per pasenger for a trip. Set the full fare for a seat at $500. If at that price they have demand for only one seat, they'll lose money on that trip. However, having sold the one seat, if they can sell each of the two others at a heavily discounted price of $200 each, they will then make money on that trip. What you seem to be asking asking is that they not sell those discounted seats.