Baggage fees help airplanes leave on time

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Charging for checked bags doesn’t sit well with most airline passengers, but the practice has actually improved the departure performance of United States airlines and has even boosted revenue, a new study shows.

“Because passengers changed their behavior, less weight went into the plane below the cabin,” says Mazhar Arikan, assistant professor of supply chain management in the School of Business at the University of Kansas. “This offset any changes in carry-on luggage, and it helped airlines improve their on-time departure performance. The below-the-cabin effect dominates the above-the-cabin effect.”

The findings, published in the journal Management Science, shows airlines improved their median departure time between 3.3 to 4.2 minutes and reduced average departure delays between 1.3 to 2 minutes, depending on whether they charged for the first or second checked bag.

The study examined planned and actual departure times on all publicly recorded US flights from May 1, 2007, to May 1, 2009, which covered the period immediately before and after most airlines began using checked-bag fees.

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While most research has solely focused on the amount of revenue checked baggage fees generated, the new study is the first to examine how the change influenced airlines’ operations. The reductions are significant because departure times and mitigating delays are crucial to so many other facets of the business, such as the number of flights airlines can offer and their image among potential customers.

Other key findings from the study:

  • Charging for the first or second checked bag improved on-time departure performance for all major airlines—including Southwest Airlines, which does not charge for the first two bags—because it creates savings due to a cultural shift among US passengers to travel with less baggage. This shift resulted in a lower demand for airport labor-intensive, back-end operations such as baggage handling and security checks, which are shared resources across airlines. So, a drop in total baggage volume benefits not only the airlines that charge baggage fees but also those that do not.
  • Southwest’s improved departure time performance was not as significant as its rival airlines, which did charge for checked bags, and it appears to have hurt one of Southwest’s historical competitive advantages in customer service.
  • Southwest’s “bags fly free” policy is likely not free based on lost opportunity cost, mostly because it could be offering more flights per day with increased boarding times due to charging for checked bags. The study estimates Southwest loses approximately $24 million for not charging for the first checked bag and $35 million for not charging for the second one per year. “It’s not free in an operational sense,” Arikan says.
  • The most positive changes in on-time departures occurred at major hub airports because less checked bags had to be moved through massive systems once passengers change planes.
  • The number of baggage-related complaints per 1,000 passengers dropped as airlines’ departure delay performance improved once most charged for checked bags.

The findings likely open the door for future research on how the unbundling of airline services influences the performance of their operations, Arikan says. Unbundling refers to separation of charges for different services an airline offers. Southwest offers the most bundled services among major airlines as it offers the fewest instances of charging customers beyond their tickets.

Source: University of Kansas