Proposed Law to Cap Checked Bag Fees at $4.50: It’s Stupid and Irresponsible. (And It’s Just a Ploy to Raise Airport Taxes.)

Representative John Mica (R-FL) has introduced legislation to cap checked bag fees at $4.50.

He’s grandstanding. Because people don’t like paying checked bag fees. So he proposes to eliminate them. To borrow a line from Milton Friedman, “there’s no such thing as a free checked bag.”

Sure, Southwest doesn’t charge extra for checked bag fees. That doesn’t make them free. They’re part of the fare. And Southwest finds it cheaper to differentiate itself this way (it’s a marketing expense) than to invest in the IT infrastructure necessary to charge the fees.

Besides, why shouldn’t airlines be able to differentiate themselves here? Why shouldn’t an airline like Spirit be able to charge for checked bags and carry on bags? Their model is super cheap fares and lots of fees, and people with more time than money or who choose to pay by paying attention to Spirit’s rules and reducing the airline’s costs along the way can get super cheap travel. If Spirit can’t charge more than $4.50 for checked bags, they also can’t charge $23 one-way fares for Los Angeles-Baltimore. (I don’t want to fly it myself but it’s great that this exists.)

Because, you know,

  • Freedom

  • Different products meeting the needs of different consumers.

Say you don’t care about freedom, you only care about getting stuff free. Let’s take a look at how this might actually play out. The proposed legislation says airlines:

may not collect from a passenger a fee for an item of checked baggage on a flight in passenger air transportation if the amount of the fee exceeds the total amount of passenger facility charges that could be imposed.

Let’s unpack that.

  • The current legal limit is set at $4.50

  • Airports are lobbying to raise that. Airlines oppose the increase.

However, here’s what happens.

  1. Airlines could drop their opposition to increases in passenger facility charges. The more you’re taxed on tickets, the more they can charge in baggage fees. (I wouldn’t be surprised if this were suggested to MICA during this week’s “lobby day” for airports.)

  2. The cap doesn’t just apply to the first bag. Airlines stop allowing second bags and beyond for most customers (perhaps except elites and co-brand credit card holders). Here are Delta’s fees for third and fourth bags domestically — Mica proposes to cap these at $4.50 based on current law.

  3. Re-bundling bag fees into fares would cost United, Delta and American each about $50 million in taxes

  4. Since award tickets all of a sudden get checked bag fees for $4.50, airlines have revenue to make up there too — one way they could do it is for frequent flyer programs that don’t already to pass along carrier-imposed surcharges. How’s that for an awful trade.

  5. Price caps constrict supply. Just like rent control limits the supply of housing and creates shortages, capping price of bags will limit investment in bag delivery. Currently Delta and Alaska offer checked bag delivery guarantees. What would we expect to happen to the required time one must check bags in advance under price caps? What incentive is there to invest in efficient checked bag systems for prompt delivery?

What happens to airfares? Do you think airlines just charge consumers billions of dollars less in bag fees, hold fares constant, and absorb a big tax hit as well (since fares but not fees are subject to the domestic 7.5% ticket tax)?

I don’t know exactly how this will play out, but one thing is for certain it won’t be lower bag fees and holding everything else constant.

But guess what? Not gonna happen.

John Mica is the Chairman of the House Transportation Committee’s Subcommittee on Oversight. But he won’t be able to get this through.

It’s pure grandstanding. Bread and circuses stuff. People don’t like bag fees, so let’s wave a wand and make them disappear. It’s costless rhetoric since it won’t happen. But a House subcommittee chairman can’t write a 2 page 18 line bill and magically transfer several billion dollars a year to consumers, let alone do that without consequence to service and fares. If this were ever taken seriously it would be downright irresponsible.

It’s just as likely that we’re all being played, that it’s leverage – a threat – to get the airlines to relent to higher facilities charges which are currently capped at $4.50. That’s the great irony here. He’s acting as a champion of the common traveler railing against checked bag fees, when he’s likely using the issue to push for higher airport taxes. Indeed, his office published a report in May arguing for just that.

Regardless, Congress is not going to save you from paying $25 or more per bag.

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’m shocked, shocked, that a politician would pander and propose legislation with no chance of passage, despite the obvious conflict with his stated principles (free market).

  2. I think you’re missing the point here, even though you basically spelled it out yourself. By forcing airlines to rebundle bag fees or choose unpalatable alternatives suddenly a massive amount of revenue is taxed again. Unlikely folks will notice the increase in fares, I seriously doubt there would be an overnight $25 increase across the board and probably wouldn’t be noticed by many consumers even if it was sudden so there’s a consumer political win as you did note as well.

  3. I get all of the points, except the tax. Don’t airlines calculate the price as airfare + tax, and then remit the tax (i.e. it’s a VAT in non-US terminology)? If so, how does making more things subject to the tax affect the airline? Assuming they just add the $25 to the fare, making it subject to the 7.5% tax, the total price for the customer goes up $1.88, the airline remits another $1.88; but the airline isn’t in a different position. Same thing if that tax went to 15% tomorrow. Airlines double the tax on the ticket, remit twice as much and move on.

    This of course ignores the (desired or mistaken) impact on demand of tax changes, but that’s not really the discussion point. If the tax is a VAT, changes to it shouldn’t impact a company.

  4. “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, the pursuit of Happiness, and also large corporations getting to set whatever checked baggage fees they like.”

    I think it’s silly to frame this as an issue of “freedom.” Freedom is a right of individuals, derived from human dignity, which is necessary for self-actualization. United Airlines is neither an individual, nor an entity possessed of “dignity”– and it’s certainly not on a path toward self-actualization (there being so “self” to actualize).

    That being said, I don’t think consumers would benefit from airlines lowering bag fees, unless, of course, we changed the structure of our economy, to steer it away from its pathological growth-based mindset (which– spoiler– we won’t).

  5. @ryan you’re thinking only of the accounting for the tax, not the tax incidence, airlines are charging the consumers the price they’re willing to pay, that willingness to pay doesn’t go up because government increases a tax.

  6. @Gary, your rights derive from your just claim, as a human being, to chart the course of your own life, to determine what’s meaningful to you and to act on that meaning– in a Maslow-ian sense, to self-actualize. That’s the project of human consciousness, and to recognize human dignity is to recognize those rights. United Airline’s bag fees manifestly do no relate to any of the aforementioned objectives and thus aren’t “rights.”

  7. @Rose let’s stay out of the realm of “United Airlines”

    I decide to start an airline, let’s assume for a moment that I get all of the requisite government approvals. But it’s me. I put up the money (no, I don’t have that kind of capital, but go with it). Say I’m a pilot, I hire a few people to manage the things I can’t. I even get the authority to be a scheduled operator and not a public chart.

    I set the prices. It’s my business strategy, succeed or fail. “to chart the course of my own life” — to pursue my project in an Aristotelian sense. Part of that strategy is to charge less for the passenger and more for the bag.

    What’s wrong with that?

    And why isn’t a violation of my right to pursue my project to tell me that I can’t do that?

  8. “Say you don’t care about freedom, you only care about getting stuff free.”

    Are these the only options?

    I was kind of hoping “maybe you care about restraining corporations for the public good” would be an option too. There are literally thousands of laws and regulations that result in things costing more. Some of them are good laws.

  9. If you’re doing going to write in such a confident, condescending tone, so sure of your elevated understanding of microeconomics, you might want to demonstrate some intellectual curiosity and honesty by considering ideas slightly more challenging to your own than “yuck, yuck, dumb people don’t understand economics, just want stuff for free”.

  10. I think ancillary fees are akin to the resort fees you hate so much. Not for you, as you always know your T&Cs, but for casual travelers who feel like they are ambushed with unknown fees every step they take. Why would otherwise people hate Spirit (or RyanAir) so much? It’s all clearly spelled out when you buy…
    A cap is definitely not the way to go, but I don’t think the unbundling you describe decreased overall prices, I think it was mostly on top of existing (admittedly low, post-crisis) prices.
    Fuel surcharges are in theory a great concept (customers can transparently understand one of the big variables in prices). However, it did not end the way… it became an essentially fixed surcharge.
    I personally feel you are the one grandstanding here, by taking shots at someone is not likely to be popular with your reading public. You have some fair points, but the rhetoric is a bit over the top.

  11. Thanks for answering Gary. My take is as follows:
    – I don’t think anybody is pushing for price controls, they invariably fail and leave everyone worse off
    – Considering ancillary fees are de facto part of fares, limiting the amount that can be attributed to them in disclosure should force airlines to re-include in base fare, allowing for easier comparison when shopping for flies (if companies wanted to differentiate they could offer to opt-out and get some money back)

    Is this what Rep. Mica intends to do? Who knows. Is there a component of populist rhetoric? Absolutely. Is he as dumb as you portray him? I highly doubt it.

  12. And I don’t think he is dumb just the idea.. I posit it is a shrewd move to leverage airlines into backing off opposition to PFC tax increases. So while he poses as a pro consumer warrior his goal is higher costs.

  13. They were… until 5 years ago!
    I love unbundling as much as you do, in principle. I am just making two points:
    – there’s very little transparency of all-in cost to the casual traveler in the fare comparison phase (airlines are getting closer to the rental car companies… and that’s not a good thing)
    – are you sure unbundling of checked bags resulted in overall decrease in price? Meaning, let’s say that 50% of people were checking bags, in different terms we were all paying 12.50 (made up numbers to be clear). Now you would expect carry on-only travelers to pay 12.50 less as they are not subsidizing others. Is that actually the case? Or considering that most people choose based on sticker price we pay maybe 5 less, but people who check their bags pay the full 25 on top, so that we are worse off as passengers collectively?

    A side note, just for fun: where do you draw the line on base fare vs. ancillary? Remember RyanAir floating the idea of charging for bathroom use?

  14. There are plenty reasons to regulate the ways in which costs are broken down and/or distributed across consumers. Insurance is the classic example. That market is, by definition, unfair: many (most?) people pay more than the cost of their own service in order to subsidize the service of others. This is an inherent feature of the insurance market that is not determined by legislation. But there are other markets in which this is *enforced* by legislation, utility provision for example. And they’re enforced for reasons that Americans will bend over backwards to avoid calling “social democracy”, but that’s what they are.

    One could make the case that the cost of luggage should (by law) be distributed across all passengers for similar reasons. One could say, the opportunity to travel by air with luggage is a public good to the extent that its cost should be borne equally by all who travel by air. This may sound absurd, but this is a country in which city dwellers pay more than cost for stamps to post letters so that people in rural Wyoming can pay less than cost. And no one bats an eyelid at that.

    To be clear and fair, I’m not suggesting that this particular politician is making such a case. He’s obviously trying to appeal to the “we want free stuff” idea, which you’re right to call out as illusory. And if you get your kicks pointing out that idiots are idiots then I’m not going to stop you.

  15. @Ben – RyanAir wasn’t ever going to charge for use of the bathroom, they trot that out whenever they haven’t been in the media for awhile, it wasn’t even their idea originally (here’s an Alaska Airlines ad from 1987 https://www.youtube.com/watch?v=EYspsgIjb4U ..)

    As far as little transparency, look at any airline website and it’s pretty prominent. American makes it really clear, for instance, during the booking process because they try to sell you fares that include a checked bag!

  16. Bag fees are a nuissance in a lot of ways, but I wouldn’t ever regulate them. If anything, I’d tax them the same way as the airfare is. If you really want to target a heinous practice, I say go with the resort fees first. Those are the worst, most disgusting fees around.

  17. @Ben I almost never check bags. Let’s suppose the government did tax baggage. In your bundled scenario that’s happening, and in that case, the government would effectively be able to tax me for a service not rendered. Moreover, the weight of bags is a true cost to the airline and one I’d prefer not to subsidize. Ever been on a flight to/from Central/South America? Those are some hefty suitcases they’re hauling.

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