The Smartest Business Traveler is in Seat 2B

Tue, 17 Jun 2008 12:51:04 +0000

When it announced its new $15 fee for the first checked bag, I declared American Airlines to be a "Microeconomics Free Zone." Its transgression, I thought, was not considering the external, but in my view largely non-pecuniary, costs of doing this. Joe Brancatelli's indispensable "Seat 2B" column at Portfolio.com does me one better. He runs the numbers and wonders if American will net any revenue from this at all.

And American seems to have imposed the fee without actually calculating how much revenue it could raise. When asked, [American Airlines CEO Gerald] Arpey couldn’t say how many checked bags will fall into the charge-to-check category and was vague about the revenue target.

Worse, the customers targeted with the fee are the ones most likely to try to duck the $15 addition by using larger carry-ons. That’s dangerous because these less-experienced fliers (think families and once-a-year vacationers) think any bag with wheels qualifies as a carry-on. It doesn’t. American’s website says the largest acceptable carry-on bag is no larger than 45 linear inches (length plus width plus height) and weighs no more than 40 pounds.

So be prepared for time-consuming arguments at the ticket counters and check-in kiosks. Unless it’s prepared to countenance ticket-counter madness, American will have to deploy additional staff to do the baggage triage. There goes some of that extra revenue Arpey was counting on.

Then there’s the stress that more carry-on bags will cause at security checkpoints. Fliers who would have normally checked their lotions-and-potions and other troublesome checkpoint items will now have them in their carry-ons. That’ll mean more time spent preparing for the screening process and clearing security.

Once these slowed-down, baggage-laden fliers reach their departure gate, they’ll run into dozens of other travelers who’ve also maxed out their carry-on allowance. With airlines running 80 percent full, that means a free-for-all for available carry-on space. American’s overworked flight attendants will have to police the planes, often going row by row to ensure that travelers have loaded bins effectively and used their under-seat space. That’s sure to delay flights—American ran an industry-trailing 62 percent on time in March—and delayed flights cost money. There goes more of Arpey’s $15-a-bag revenue stream.

But, wait, it gets worse. No matter how efficiently passengers and flight attendants arrange luggage, some passengers probably won’t have room to stow their gear. That means American’s gate agents will be required to gate-check the extras. That’s a time-consuming process. An agent must get a luggage tag, affix it to the bag, then hand it off to a baggage handler on the ramp, who must then stow it in the belly of the aircraft. More time lost.

How much time? No one really knows, but an international airline executive tells me that his flights have run an average of 15 minutes later since the carrier adopted a pay-for-bags system two years ago. “I don’t know how much is due to extra carry-on bags, but it’s a factor. It’s eating into the ancillary revenue we get from the baggage charges.”

Now the big fly in Arpey’s revenue ointment: The high cost of delayed and lost baggage created by too much carry-on luggage. Delayed flights mean missed connections and missed connections mean more of what the industry euphemistically calls mishandled bags. (American already mishandles 7.32 bags per 1,000 passengers; American Eagle’s rate is 13.08 per 1,000.)

My sources tell me it costs an airline about $60 in labor costs and trucking fees to return a late bag to a customer. That means each additional delayed bag American creates will wipe out the revenue of four checked bags. And woe to American if it loses more bags. Airlines are on the hook for as much as $3,000 in liability for lost luggage. Carriers rarely pay fliers that much, of course, but let’s say a lost bag eventually costs American $2,250 in cash payouts and administrative costs. At that rate, each additional bag that American loses will wipe out the revenue from 150 checked bags.
Read the whole thing, and bookmark Seat 2B.