The Department of Unintended Consequences (Bag Edition)

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or Airline Bag Pricing Fail. Take your pick. Here is the story.

Homeland Security Secretary Janet Napolitano told Congress this week that luggage fees have prompted more passengers to hold onto their bags, which means more items for Transportation Security Administration officers to inspect at security checkpoints at a cost of about $260 million annually.

So what do we have. When airlines impose a checked baggage price to cover weight costs, consumers switch to carry-ons. This involves several costs including longer-wait times at security and getting on the plane. Those costs are borne by travellers but airlines internalise a bit of that as the travellers realise that. But the costs are also borne by the TSA to check all of these. The costs are smaller per bag but there are lots of additional bags. They want airlines to pay these costs which makes some sense.

First of all, how much are the costs? Well apparently, the TSA would raise $600 million with a surcharge on tickets of $5. So that is 120 million trips. That means that per trip, if the $260 million number is to be believed, passengers are costing the TSA an additional $2.17 because of baggage fees. Really? That strikes me as implausible suggesting the ‘cost’ figure is some total cost rather than an incremental cost.

Second, who do we want to bear these costs? The airlines seem a natural choice. For some reason they don’t charge per bag regardless of how it enters the plane. If they had to bear costs incurred from the carry on option, that seems like a good idea. However, some of those costs are under the control of the TSA. And they are broad benefit costs — the benefits of which accrue to all passengers in terms of increased ‘safety.’ Do we really want them to be pushed back down to the passenger level? What we want is for the TSA to bear the costs and work out ways of making security more efficient (or choosing the optimal level of security). So there is a classic balancing act.

Finally, don’t we really think that if hotel laundry pricing was cheaper, lots of this problem would go away?

3 Responses to "The Department of Unintended Consequences (Bag Edition)"
  1. This doesn’t reduce weight on planes. It’s just price discrimination. In the last year the only airline that tried to charge me was Lufthansa on a flight between Munich and Copenhagen. Our checked luggage was a few kilos over the limit. So they waited while we took the heaviest stuff out of the bags and stuffed it into our hand luggage. Then they were happy to not charge us anymore. Just a hurdle to jump to get the lower price.

  2. I would guess (I don’t know) that airlines are charged by the airport per checked bag to cover baggage handling costs.
     
    So an obvious (but possibly impractical) solution would be for carry on bags to also be “checked in” by airlines.  They would be tagged like checked bags. Untagged bags would not be allowed through security.
     
    Airlines could then be charged per carry-on bag to cover security costs and could choose whether to pass this cost onto customers.
     
    Solving the hotel laundry problem is not so straightforward.

  3. Charging for checked luggage has prompted many passengers to “carry-on” board luggage that they previously checked.  In effect, airlines have shifted to passengers  the direct costs of loading and unloading luggage.  

    Moreover, lost baggage has been significantly reduced. and plane turn-around times have been reduced. If turn-around times can be reduced by 10 minutes on each segment, then a plane can fly an extra segment each day.

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