American Airlines announced this week that they will increase the first checked bag fee from $30 to $35 if purchased in advance online and $40 at the airport. It marks the first increase since 2018. In Game Changer, we mentioned that such fees make sense in principle. Unbundling luggage from an airline fare and charging a fee helps airlines align their prices with their costs of transporting the additional weight. That is an important factor in the Dynamic Game, where nearly every value and cost component can play a role in price setting. But as with the introduction of any change to a pricing model, a company needs to look beyond the math and understand how the changes will shape customer behavior. Many passengers now carry more luggage into passenger cabins to avoid these baggage fees. As an article in The Atlantic pointed out last week, this behavioral shift is stretching the capacity of luggage bins – and often the patience of passengers – beyond their practical limits. Let’s just say that the messy reality of an airplane cabin usually looks quite different than the way you would draw it up in a corporate manual, when everyone comes with a properly sized carry on and stows it the right way. All too often, passengers have to stuff their puffy winter coat or their bursting-at-the-seams backpack in the overhead bin as well. What’s the solution? An article in The Wall Street Journal last summer described how one passenger has started to wear a fishing vest onboard with spacious pockets to avoid checking a bag and using the overhead bin. Other people remove the foam from their neck pillows and pack them with personal belongings. I doubt that these hacks will become mainstream trends, but with TikTok today, you never know. In any event, American’s fee increase this week comes on the heels of what its CEO called “an exceptionally strong performance” in 2023, when the airline generated record-high revenue of around $53 billion. United and Delta also had strong financial results in 2023, as did Southwest, which still has no fees for checked baggage. Should airlines continue to increase their fees for ancillary services such as checked baggage, or is it time to rethink the structure of air fares to align them better with customer value?
The carry-on baggage bubble is about to pop
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