Baggage Fees' Surprising Benefits for Airlines and Passengers Alike

While baggage fees in the airline industry have long been considered a main cause of flight delays, recent research shows this presumption to be incorrect. In fact, the opposite is true: Rather than hindering on-time performance, fee policies for checked bags actually reduce the percentage of late flights, says Amirhossein Alamdar Yazdi, Ph.D., assistant professor of decision sciences.

After fees for checked-in bags were instituted in 2008 by most U.S. airlines, the policy was believed to produce delays by motivating passengers to bring the biggest and heaviest allowable carry-on luggage in order to avoid checking bags, thereby resulting in long security lines, slowed boarding and increased luggage hassles.

“We wanted to see if baggage fees were really a main driver of flight delays,” Dr. Yazdi said. His research revealed that, after the fees were instituted, the resulting lower numbers of checked bags and reduced customer demand led to improved on-time performance.

“Airline baggage fees and flight felays: A floor wax and dessert topping?” by Dr. Yazdi; Pritha Dutta of the University of Massachusetts Amherst; and Adams B. Steven, Ph.D., of the University of Maryland, College Park, was published in Transportation Research Part E: Logistics and Transportation Review.

The study was the first to simultaneously examine the complex route-level effects of baggage fees on late flights, ticket pricing and passenger demand, including four potential modifiers of the baggage fees/late flights relationship: the presence of low-cost carriers, hub routes, market concentration and characterization of routes as being leisure related.

Dr. Yazdi and his co-researchers gathered comprehensive information for nonstop domestic routes of 11 U.S. airlines and examined on-time flight performance throughout 46 calendar quarters stretching from the 2003 third quarter through the 2014 fourth quarter. The rough midpoint was 2008, the year most U.S. carriers implemented baggage fee policies. The final data set involved nearly 160,000 observations.

Results indicated that, while instances of late flights trended upward from 2003 to 2007, the percentage of late flights dropped in 2008 after the imposition of baggage fees, by nearly 6 percent on average for affected routes. Other benefits were realized as well. “There was improved on-time performance for airlines, increased revenue for airlines, decreased baggage sorting and loading for airports, and fewer delays for passengers,” Dr. Yazdi said. “Everybody reaped the benefits. It was a win-win situation for all.”

The researchers found that airlines reduced their base fares once checked bags were no longer complimentary, but baggage fees were higher than the fare reductions, so airline revenues rose while travel costs for passengers increased as much as 7.7 percent. The cost increase, in turn, led to an average 4 percent decline in passenger demand and a drop in the number of checked bags. Additionally, the improvement in on-time performance was lower on hub routes (potentially due to high levels of complexity and passenger demand inherent to hubs) and leisure routes (potentially due to a higher likelihood of leisure travelers to check bags) and was not dependent on the presence of low-cost carriers or market concentration.

Dr. Yazdi, who joined the faculty at Adelphi in Fall 2018, said, “Adelphi University provides an outstanding education to its students. The students are very diverse; they come from different parts of the United States and from different countries and are of a range of ages. The faculty is also very supportive.”

His current research focuses on low-cost carrier Southwest Airlines. “We are investigating how the potential entry of Southwest into a new route affects the performance of incumbent carriers in terms of quality and price. Southwest is the largest low-cost carrier and has been consistently among top performers in operational service quality,” he said. “My long-term goal is to expand my research into other service industries as well, including healthcare.”