AAdvantage Geek points out that through November 22, American is offering its elite members 500 bonus miles for checking a bag in Boston. Of course, elites get free checked bags, so they’re encouraging customers to do something that’s free.
So Wandering Aramean suggests,
[T]here doesn’t really seem to be a need to care about what you’re checking. I figure just grab a FedEx box, put a bag tag on it and collect your 500 miles. No need to even collect the box at the other end
I find this move by American interesting, though not at all surprising. They’re testing whether they can incentivize folks to check bags, not because it generates revenue but because it’ll simplify the boarding process.
Airlines have been charging for checked bags, so no one wants to check bags.
Not that savvy travlers wanted to before, pack well enough to avoid checking a bag and the airline won’t lose that bag, and you won’t waste half an hour with the process either. If you do two round trips per month checking a bag each time, that would mean a full day of your life every year just waiting for checked bags.
Frequent flyers aren’t the frequent bag checkers, nnd they aren’t the ones seeing the cost. But with the baggage fees comes a desire not to pay those costs, and more bags get dragged onto the plane. Elite status becomes all the more important, early boarding means having overhead space to store your carryon and not having to gate check.
Storing bags and gate checking slows down the boarding process and delays flights, not only making the travel experience less enjoyable but costing airlines money.
So we now have the bizarre situation where airlines charge passengers to check bags, discouraging them from doing so. And essentially paying elite passengers to check bags, while generating no revenue.
And yet this makes total sense!
Most observers believe that checked baggage fees are generating huge income for the airlines. I’ve long disagreed. My contention has been that when a product has mostly fixed costs, and the marginal cost to provide it to another customer is close to zero, the producer will make more money by bundling it with other products than by selling it separately.
Although in the current environment, with how tickets and services are priced, I would have expected that unbundling passenger travel from checked baggage would fail to raise net revenue for an airline. In fact, I would have expected bundling to be a profit-maximizing strategy the way it is for software or cable television channels.
Moving checked bags is mostly fixed costs. Once the baggage carousel is built, the trucks are purchased, you’ve hired baggage handlers, and you’ve outfitted your planes to handle checked bags, you might as well get more passengers to check bags rather than fewer either at a price which is continually falling or bundled into the overall price of the ticket. (This seems true at least as long as the price of checking the bag or the increased price of the ticket resulting from bundling exceeds the fuel cost from the incremental weight of the checked bag.)
Few observers are convinced, and argue that the spread of baggage fees must mean they’re profitable. I argue instead that it’s really a tax avoidance strategy.
When airlines throw in checked bags with the ticket price, there’s a 7.5% excise tax. But that tax doesn’t apply to baggage fees priced separately. So checked baggage fees are a way for airlines to move part of their revenue stream into a bucket that doesn’t get taxed as heavily.
In so doing, they’re seeing costs from too many carryon bags slowing down the boarding process. And they’re willing to try out ways, like incentivizing elites who get their checked bags free already, of compensating for those costs which are incurred as a result of the tax avoidance which comes from unbundling baggage from tickets.