Checked Bag Fees: the Parable of the McDonald’s Happy Meal

The Parable of the Happy Meal. Here’s an excerpt:

Some restaurants offer burgers without fries and a drink. These restaurants cater to low-income people who enjoy fries and drinks but can’t always afford them. To rectify this sad situation a presidential candidate proposes The Happy Meal Act. Under the Act, burgers must be sold with fries and a drink. “Burgers by themselves are not a complete, nutritious meal,” the politician argues, concluding with the uplifting campaign slogan, “Everyone deserves a Happy Meal!”

But will the Happy Meal Act make people happy? If burgers must come with fries and a drink, restaurants will increase the price of a “burger.” Even though everyone likes fries and a drink they may not like the added benefits by as much as the increase in the price of the meal. Indeed, this must the case since consumers could have bought the meal before the Act but chose not to. Requiring firms to sell benefits that customers value less than their cost makes both firms and customers worse off.

Alex Tabarrok writes about employees vs. contractors but the this part of the story applies just as well to travelers and checked bag fees.

We all want free fries and a drink (unless we’re low carb or avoiding the calories, but go with me here). Yet there’s no such thing as free fries.

Spirit Airlines then is the McDonald’s (err… the Grimace?) of air travel, offering us value meals with a dollar menu. I couldn’t even tell you how many year’s it’s been since I’ve eaten a McDonald’s hamburger.

Do you want to order a combo or a la carte?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I though the RSS reader cut off the rest of the article but that’s actually the end! LOL Gary 🙂

  2. You had me, until you said “checked bag fees”. In reality, the incremental cost of offering checked baggage does not come close to the fee. Moreover, there are advantages to the carrier by having fewer carry-on bags- faster turns; less passenger conflict, etc.

    If you think about it, checked bags are similar to toilets- they add extra weight to the flight, but are an avoidable convenience on all but the longest flight. People like to bring stuff with them when they travel, but if subject to fees, would just bring a carry-on. People need to pee; but if subject to fees, would probably remember to pee before they get on the flight, or if they really needed to go, pay the fee. Yet you probably don’t have problems with the government mandating free toilets on flights…

    The better analogy to happy meals would be food on flights, or more leg room- but even there, there are health and safety concerns that might mandate a minimum spacing.

    Unbundling business class fares might make more sense- make all lounges pay-in?

  3. @George

    “In reality, the incremental cost of offering checked baggage does not come close to the fee”

    In non-communist lands, we call this a business operating at a profit. Do you think it costs Ray-Ban $200 to make your sunglasses or Polo $79 to make a knit cotton shirt? Why should airlines be held to a different standard. You have other options… ship your clothes via a courier and travel without luggage if you want.

  4. “Free” checked bags are simply a tax on those who don’t check bags through higher ticket prices. Bags have weight, weight equals fuel, and fuel costs money. It’s amazing how many people don’t understand the fairly simple economics behind this and why bag fees (and a-la-carte pricing, in general) make perfect sense.

  5. The comparison doesn’t work Gary, because there was never a time when every major restaurant offered fries and a drink included, but then decided to charge for them.

  6. I would love to see a la carte business class tickets. Forget the lounge, premium dining, drinks, baggage, seperate lines, preboarding etc. just give me a lie flat seat for 50% more than economy.

  7. What if I want a small fry and large drink, versus the standard medium fry and medium drink? Or in this case, I want to check two bags or no bags, versus the one bag priced in the ticket?

    In the end, charging incremental for a second bag (in a one bag free model) uses the same system as charging for all bags, so why not make bags optional? Plus, it gives airlines an opportunity to provide a benefit to their elites, other product customers (credit card users, etc), and those they want to benefit (military).

    On a final note, I don’t care how big the fries are, since I’ll only eat what I want, but I want my large drink! 🙂

  8. Sometimes I just want a burger, hold the fries and skip the drink. Sometimes I want burger, fries and drink. And sometimes I want a sit-down meal. I’ve been known to enjoy a fancy dinner on occasion…

    I have nothing against fast food travel, I use it from time to time. Some people swear by it, others won’t touch it. If one knows one is ordering fast food travel, one shouldn’t complain when it isn’t a sit-down meal. Gary of course knows exactly what he’s getting when he orders. As long as he’s clear that fast food travel isn’t for him, it’s all good. 🙂

  9. @Justin,

    The article is about “Requiring firms to sell benefits that customers value less than their cost makes both firms and customers worse off.”- all I’m saying is the incremental costs of checking a bag are low, especially when you quantify the additional external costs of more carry-on (slower boarding, etc). I don’t even know if it does much to reduce the weight of the plane and save fuel costs- most people I know just jam pack their carry-on instead.

    I think additional space is one of the most valuable benefits that airlines offer, so why not an incremental fee to switch seats to the empty row, etc? Or a card swipe on the arm rest that lets you move your seat back an inch for an additional $20?

    If you want to talk about pricing power, than charging for toilets makes much more sense- when you gotta go, you gotta go!

  10. @Anon- if you want unbundled premium services, then you are in luck- just fly United. I’m flying UA Global First SIN – ORD, and it’s basically just hard product.

    – No separate check-in (all you had to say was “premier” to get in the first class line),
    – Access to only the generic SATS lounge in Changi (Priority Pass would get me in as well),
    – no priority boarding – about 1/3 the plane got on in boarding zone 1,
    – pretty much the same food as the other classes- their premium scotch in flight was Dewars White Label.

    What a disappointment after my last two 1st class flights on LH and CX! Agreed, I am not a 1st class revenue passenger, and so in many ways am getting what I paid for. But I do fly paid J trans-pacific regularly, and UA Global First is so crappy that it reinforces my decision to avoid the US legacy carriers whenever possible…

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