Bailout

The negative bag-check fee

By Felix Salmon

Back in September, Joe Brancatelli made a compelling case that bag-check fees at major airlines were actually losing them money, rather than making money. And that was before Southwest airlines embarked on a major marketing campaign touting the fact that they check bags for free — a campaign that Eric Joiner calls “pure marketing genius”.

Eric has some very smart and well-informed analysis of the economics of checking bags: essentially, if, like Southwest, you only have one kind of aircraft, then checking bags saves you money because it speeds up the rate at which passengers get on and off the plane. And he knows that the economics of reducing the bag-check fee from $25 to $0 are essentially the same as the economics of reducing it from $0 to -$25. And so:

What if an air carrier said…rather than charge you a fee to check a bag, They would PAY you to do so?

I love this idea. A lot of people, of course, simply hate the idea of risking their bags being lost, and/or of milling around at a baggage carousel waiting for their bags to arrive. But many others would love the idea of getting paid, in dollars or in frequent-flyer miles, for checking their bags — especially if they had realtime information on exactly where their bags were at all times. (I think the current paper baggage tags would need to be replaced by tags with RFID chips, but that’s doable.)

The result? Passengers would get on and off planes more quickly, the airlines would make more money, and everybody would be happier. It’s a vast improvement from the status quo, where, according to Eric, airlines sometimes deliberately lose bags:

Consumers think the airlines lost the luggage. In fact many times the airline couldn’t accommodate it so they chose to pay a premium to deliver it to you later, often at the cost of your loyalty and future business.

So, Southwest (or JetBlue, or Virgin America, or one of you guys), whaddyathink? Who wants to be the first airline with a negative bag-check fee?

(HT: Ryan Schick)

Full post as published by Macroprudential on March 26, 2010 (boomark / email).