Jet Blue and United Airlines recently raised their checked baggage fees from $25 to $30 for the first bag checked (see this article to read more). Just 10 years ago checked baggage fees were unheard of but they are the norm today and airlines are increasingly looking for ways to add charges and fees to improve their bottom line. Air travel is basically commoditized and, as a result, leisure travelers tend to search for the lowest price when booking travel. This significantly hurt airline profitability until they started charging additional fees for checked bags, carry-on bags, early check-in, seat reservation, leg room, in-flight snacks, entertainment, and more. Now airlines can benefit from the high margin they get on these fees yet still advertise low fares.
This topic presents numerous angles for a conversation with students. Is it ethical for airlines to advertise low prices when the end price a consumer will pay will likely be significantly higher? Why were the airlines able to enact this trend in adding supplemental charges? i.e. if one airline started charging for checked bags, why didn’t others push free bags as a differentiator? How does the airline industry’s status as an oligopoly affect this market dynamic? How do business travel and loyalty programs make it easier for airlines to push price increases like this?