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Unbundling is not all bad by Viajeguy

Unbundling is the airlines’ latest attempt to retrench & redefine their business model in the face of rising fuel costs and a sagging world economy which in turn creates a cash hemorrhage amongst beleaguered airlines. Unbundling ( also called a la carte pricing ) both reduces/eliminates services ( such as free meals or snacks ) and it creates additional fees ( for checked baggage charges, in-flight beverages, & redeeming FF miles ). It’s a parallel process to other price increases such as fuel surcharges for each ticket. On the whole, unbundling is a mostly rational response by airlines as they grapple with rising costs and shrinking revenues. It is also a flash point for consumer anger and discontent.

By far, the most controversial consequence of unbundling is charging passengers for each piece of checked baggage. Formerly, passengers were allowed to check two bags free of charge provided they met weight and size requirements. Today, most American carriers charge fees ranging from $15 to $50 for each checked bag. Passenger reaction has been that of outrage and complaints that the fees are “unfair”. A prevailing response is that airlines should simply charge more for the ticket instead of nickel and diming customers. This belief as it turns out, is misinformed.

In truth, these new baggage fees are quite rational and inherently fair to the aggregate of passengers. They identify strata of passengers who do indeed create additional costs to  the airline which the airline in turn passes directly to the individual who creates that cost. Admittedly, it is hard to believe that the airlines have come up with a rational response which is specifically targeted, but it’s true. How so?

Airlines have indeed raised airfares in response to rising fuel costs, but this alone is not enough to stem their cash hemorrhage. When airlines examine who checks bags and who does not, it turns out that infrequent flyers, those folks fly only occasionally tend to check more baggage than other types of fliers ( and weight requires more fuel consumption which in turn raises costs ). 

Airline elites, those folks who belong to the airline’s frequent flyer program (FF), fly frequently, and have flown enough annual qualifying miles to earn a special tier status within the airline’s FF program tend to pack lighter, travel more efficiently and tend to carry-on their baggage rather than checking it. This all means less cost to the airline. Another important factor is that airline elites ( frequently business flyers ) also tend to purchase higher fare tickets. They, like all customers are paying fuel surcharges as well as assorted booking fees for telephone reservations, itinerary changes and FF award redemption fees.  Airlines fear alienating this valuable group of regular customers by simply raising fares to address aggregate baggage costs.

Infrequent flyers may not like or approve of the new checked baggage fees, but in this instance, airlines have indeed managed to correctly identify a specific source of costs and they pass this cost onto those passengers only.

Of course there are untoward consequences from any change. One of these flows from more folks electing to carry-on their baggage ( and hence avoid the checked baggage fees ). This means that one should anticipate intense competition for overhead space in the cabins as infrequent flyer folks try to cram their belongings into smaller sized carry-on bags. The real lesson here is to learn to pack and travel light -- less is more, at least when it comes to flying. Airline elites will also have to persist with the crowded cabins, but they at least enjoy preferred boarding which means they may queue for early and at least find open overhead space. But this is a perk earned by product loyalty and butt-in-seat flying and money spent to fly.

A positive aspect of unbundling and checked baggage fees is that infrequent flyers are either learning to fly lighter or they check less bags. Less checked bags means that baggage handlers have an easier task and this in turn should result in improved baggage handling and less mishandled & lost bags. Thus far, only one American airline, Southwest, has resisted the airline embrace of checked baggage fees and actually advertises that they will never charge for a checked bag. Perhaps wishful thinking, but also an example that competition is alive and well in the American airline industry, even in these difficult times.

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