This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
4/01/2008
Start Packing Lighter, Folks
According to this article, Northwest is changing its luggage policies. Beginning in May of this year, passengers are only allowed to check one bag for free. The second bag will cost $25. Unless you're first class--in which case the second bag is still free. In addition, charges for overweight bags are getting steeper, too. Obviously, this move is in an attempt to discourage passengers from checking a second bag in order to better manage and cover fuel costs. But what do you think this will do to demand? I doubt people will fly first class instead of coach just to check their second bag for free. No, I think in the short run Northwest will probably suffer from lost ticket sales. But I have a feeling that (as fuel prices keep rising) more and more airlines will move to this kind of policy. So in the long run, it may not make a difference.
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2 comments:
I think first off there are certain factors that come into play: 1. Will Nothwest keeps its same prices or lower them due to the reduction in baggage 2. Will competing companies also follow suit 3. Is Northwest currently the lowest airfare and will an extra $25 not really matter because of the amount they are saving by flying them.
I personally don't think $25 is that much to cause a huge shift in demand. Especially if other companies do the same. I guess to be accurate though we will have to wait and see!
In principle, all of this is quantifiable. There is an elasticity of demand with respect to price, an elasticity of demand with respect to bag charges, and a cross-price elasticity.
My guess is that most people are more elastic with respect to price than bag charges; so this is a good plan.
Notably, most airlines already have charges for bags past the 2nd or 3rd, and for overweight bags. The response of most passengers is to fly anyway and try and avoid those charges.
Personally, I've often found the extra bag charge a convenient way to carry extra stuff around - its often competitive with UPS since airlines charge a flat fee up to a fairly high weight. Plus, they have skycaps.
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