By February 4, 2008 15 Comments Read More →

United Adds $25 Fee for 2nd Bag

Yahoo News Story

By Mike R. Lopez:

I saw this story about United Airlines charging customers to check a SECOND bag. Not the fifth or sixth bag, but NUMBER TWO!

This reminded me of a training slide that we have in our Lean education program. There are three ways to cut costs. You can cut costs across the board by reducing all budgets a fixed percentage. This is the lazy path. You can cut costs by cutting services. This is the stupid path. Finally, you can cut waste. The smart path.

This extra fee strikes me as part of the stupid path because it cuts a core service and makes customers pay extra for something they get “free” from other airlines. According to the article, United expects it to generate $100 million in revenue and cost savings a year. Does this mean that United’s tickets will be consistently cheaper than companies that do not charge a per bag tax? I highly doubt it as the article shares that this is but one small part of a larger plan to charge more for less, a clear violation of the Profit=Price-Cost rule:

Airlines want to charge more for not only checked baggage but assigned seats and other services. Investors have urged airlines to pass on the higher costs of fuel to passengers through ticket-price increases or similar surcharges.

If United is planning to save money by flying fewer people, they might be able to claim savings because I don’t think their scheme will end up with them making any more revenue. We’re likely to see United lose revenue to the benefit of airlines that are more responsive to real flying customers, not day traders.

********UPDATE 2/26/2008**********

It appears that US Air is going to charge $25 for a second bag.

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15 Comments on "United Adds $25 Fee for 2nd Bag"

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  1. Kathleen says:

    Just because this “core service” is free on other carriers, doesn’t mean it should remain so. If anything, I think it’s fair; it assigns the costs of the profligate natures of others where it belongs. If someone is so inefficient at packing that they “need” two bags, they should pay for it. It costs money to move this stuff around and in this era of skyrocketing fuel costs, things will only get worse. Iow, if adding this surcharge keeps ticket prices from rising by assigning costs where they’re due, I’m all for it. Why should I have to continue to subsidize the wasteful habits of others? People should cover the costs of their own inefficiency. I would be very surprised if other airlines didn’t adopt similar policies.

    If you’re planning an inordinately long trip and need two bags, join their frequent flier program; the second bag is free in such case.

    ps. I’m a business traveler who’s needed a second bag to cart around print material for events. On United (if I’m not a member) I’ll have to pay more but why should other passengers have to subsidize my business expenses or lack of planning? If the excess baggage fee is less than shipping, I’ll do that. Otherwise, I’ll have to plan ahead to ship my products ahead of my arrival.

  2. Chet Frame says:

    Will the fee for the second bag be used to insure that both bags will get to your destination in tact? I remember, Mark, that you had an item last year or the year before about the Billions of dollars per year the airlines spent delivering late baggage. If the fee is going to reduce that amount, go for it.

    However, as a realist who flies a great deal, I have visions of people with two overstuffed roller bags trying to get them into already overflowing overhead bins.

  3. Jack Miller says:

    You are missing the whole point. This is similar to the Best Buy strategy of making more room for the “good customers” by raising the price on the “bad customers”. In the Best Buy case, the “good customers” finance their purchases at high interest rates, buy the extended warranties and are frequent buyers. The airlines are flying almost full with full fare business travelers. These travelers are frequent fliers who pay higher rates for better service and they know how to travel light and how to stow their bags. United invites the infrequent flier, who is a “price shopper” to find an empty seat, provided he does not take up valuable cargo space as well. There is a price point at which it makes sense to leave a low fare seat empty as a gamble on a last minute full fare passenger. For three years, the legacy airlines have flown with full seats. The international demand growth has been huge. Discipline has “broken out”. The major carriers are not after market share at any price. They are after profitable business. In the event a middle seat is empty, the full fare passengers on either side are happy customers and the loss to United is marginal at best.

  4. Cafemakers says:

    I wonder if anyone considered the impact that such a fee would have on carry-on baggage practices. Picture the ‘average’ flyer that arrives at the airport with two bags and is told that he or she will have to pay $25 to check one… the alternative: check one and carry-on the other. What would you do?

    I foresee that we (who must fly United regularly for reasons of convenience) are about to be inundated with on-board baggage problems, flight delays and a overall (worse) lack of storage space as a result of this policy.

  5. Jack Miller says:

    Once again, the point is being missed. It is the infrequent flier who is not a member of the frequent flier club who is being discourage from flying United. Frequent fliers as a group are more likely to know how to board and stow luggage without the hassles. The economics are simple, higher fees for infrequent fliers will mean fewer infrequent fliers and easier boarding.

  6. Cafemakers says:

    Not missing your point – on the surface, it seems very reasonable; however, I highly doubt that most infrequent travelers will be aware of the 2nd bag fee until they try to check in at the airport with 2 (or more) bags in hand.

    Result 1: The infrequent traveler is pissed off and takes the extra bag carry-on.

    Result 2: The infrequent traveler is pissed off and pays the extra $25 fee.

    So long as United pursues the artificially deflated ticket price approach by supplementing its income with costs that do not appear on discount Internet travel sites, the trend is likely to continue. Infrequent travelers will continue to “click” the the cheapest airfare, unaware that other fees await that may not on other airlines.

    Penalties are unlikely deterrents to those who are unaware that they may be imposed.

    Here on the Big Island of Hawaii, I suspect that we will face among the worst of the delays predicted in my prior comment. Most travelers here are infrequent flyers (annual vacationers, retirees) and for some reason feel compelled to bring a month’s worth of clothing for a one week trip. (Look for the wingtips at the beach.)

    Trust me, I’m down at the Kona airport at least once every two weeks and usually flying United. These people are not going to know about the fee until a customer service rep tells them — arguments will break out (they’re already in a bad mood going home) and it’s going to be an ugly and time consuming mess.

    Whatever you do, don’t come here during the Ironman competition this year on United (if you must, fly something else through Honolulu). Locals already expect travel delays of 2-3 hours due to baggage handling problems at check-in in past years (bicycles, mostly).

    United always seems surprised by the increased volume of travel and baggage from the annually recurring event that brings thousands from around the world (with their bicycles) here for one week. (Oh, is it Ironman again? Maybe we should have more than one employee working?)

    I can only imagine what it’s going to look like when CSR’s are trying to explain the extra $25 fee to a tired and grumpy mob of French cyclists. C’est la vie.

  7. Mike Lopez says:

    I agree with cafemakers. I’m one of those customers that would be enormously pissed off. I think that stores like Best Buy prey on people who don’t know any better. They might call it focusing on more profitable customers, but I call it taking advantage of the price ignorant. Best Buy is no place to buy electronics unless you want to pay a 30% premium for no good reason. To me, Best Buy is just like Walmart. Walmart is basically full of overpriced dollar store junk. Both stores prey on the uninformed.

    Rather than respect the 25% of customers who bring two bags on the plane, United is rejecting them unless they pay the extra $25 fee. Other airlines are not treating travelers like this. As a consumer, I feel it is my duty to fight price inflation because that is my money they’re taking out of my pocket.

    If the price rises without adding value, then that means I’m paying for waste and I’m going to fight that tooth and nail.

  8. J Thatcher says:

    While I find Jack Miller’s comment enormously interesting, ultimately I think cafemakers has a point.

    So long as United is artificially lowering their prices on discount travel sites they aren’t discouraging the infrequent flyers, they are attempting to take advantage of them.

    Of course, this will be determined by how all of this plays out.
    If United really is discouraging their infrequent flyers to attempt to create a “business friendly” coach clientele of frequent flyers, I’m sure they’ll stop deeply discounting their fares on the discount travel websites and clearly inform the customer repeated times about the baggage requirements.
    If they aren’t, I’m sure we’ll continue to see their fares as the lowest, perhaps inching ever lower now, and the hidden cost will take its toll at the airport angering infrequent flyers and frustrating frequent ones.
    Seems a gamble to me.

  9. jdvm says:

    I think the airlines are really flying backwards on this one. They’re missing a growing trend: both business and leisure travellers want to have more of their personal stuff with them when they are away from home—not less,

    This policy will frustrate fliers and force them into alternatives like shipping items or storing them at the destination if they are frequent visitors.

    jdvm
    http://www.ownerslocker.com

  10. Jack Miller says:

    Deregulation occurred in 1978. It has taken a very long time to reach the “clearing price”. It has been reached. All the legacy carriers are bumping up prices because they can. However, they are trying to be careful. They do not want to tick off their frequent fliers?

    Will price increases anger some people? Certainly! Who wants to pay more? Believe it or not, we have just entered the part of the business cycle that economist call the prosperity phase. This is the phase where businesses pay what ever it cost to be in the front of the line. They do not want to sit at home while competitors make off with the new business. It is easy and tempting to bash the highly successful companies such as Wal-Mart and Best Buy. Despite the bashing, they will continue to prosper. UAUA is making money. The other airlines are making money. They are flying with all seats full. It is just plain old common sense to charge a little more if you are going to be sold out anyway.

  11. Mike Lopez says:

    Here is another article that talks about some consumer reactions.

    http://www.msnbc.msn.com/id/23014482/

  12. Mike Lopez says:

    If they are going to try to make things fair and recoup fuel costs, then I’d like to see them charge by the pound instead of charge by the seat and the bag.

    I would perceive an increase in value if I had to pay for the 40 lbs of luggage, but NOT have to pay for the 100 lbs of weight that my son doesn’t have.

    In fact, I just worked it out. If I consider that me and my luggage weigh 200 pounds and I pay $300 for a ticket, for my family to fly by the ticket costs $1200. For us to fly by the pound at $1.5/lb costs $700.

    Now THAT would be fair.

  13. Ralf Lippold says:

    It really sounds as United official should walk the GEMBA and fly themselves being put to the new policy.

    Then they would -I suppose- quite clearly see that this is not the way to solve problems in baggage handling.

    There are definitely other and leaner ways;-)

    As I can see the problems with baggage are the in general everywhere on the planet and in our “Lean Thinking” group at XING (http://www.xing.com/net/lean) we already thought loudly about consulting airlines on that issue as everybody of us is a “frequent” flyer on whatever reason. Customer counts and why not articulate that in a way so every of the two parties (airlines – customers) get benefits?

    That are my thoughts triggered by an overwhelming response rate (14 including myself now) on Mark’s initial posting.

    Best regards and see you around

    Ralf

  14. Mark Graban says:

    If you want a laugh after reading the debate, check out the “discussion” about this topic on The Onion’s website.

  15. Jack Miller says:

    Mike,

    I appreciate your desire for fairness in regard to children and pounds per ticket. However, as we all know, the business of business is to attract profitable business. Having run a resort condo rental business for 20 years, I appreciate that changing prices is both the most controversial thing and the most profitable thing a manager can do. My wife and I tried to keep our prices as simple as possible. However, over time, to maximize our profits, we found that we had to price in all sorts of variable costs. For example, when we started, we rented a condo without regard to how many people would stay. Later, we offered a lower price to a small family. At times, it was better for us to rent to a small family than to let the week sit empty. On the other hand, we had to be careful not to fill all the big condos with small families.

    The bottom line is that people will complain for a while but they will get used to the fee.

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