The Economics of Checked Baggage

What to make of Delta's new sliding scale for checking bags? On domestic flights, the first bag is free, the second is $50, and the third is $125.

This kind of thing is the exact opposite of most retail economics, where the more you buy the cheaper the unit cost becomes. Delta seems to think there are diseconomies of scale to checking bags: that checking twice as many will cost it much more than twice as much.

This is not intuitive. If you break down Delta's baggage-handling costs into fixed and variable, the fixed costs would include the maintenance of the infrastructure and the wages of the baggage handlers. Maybe a drop-off in checked bags will allow the number of baggage-handling staff to come down a little, but I doubt those numbers would be very large. The variable costs, by contrast, are pretty much entirely a function of the bags' weight.

Under its new scheme, one large, heavy bag travels free, while three small, light bags will cost you $175 and four will set you back $300. I'd love to be a luggage shop in the Delta departures area right now, selling big cheap duffels to passengers faced with sticker shock.

The obvious alternative would have been for Delta to charge by weight: give everybody an allowance of say 30 pounds, and then charge per pound above that. That would be fairer, and easier to understand too: right now the system is a complete mess, with international travellers paying $150 for three bags, but all of that being for the third bag, with the second flying free. And of course there's a long list of exceptions: first-class passengers, elite frequent fliers, military customers.

Delta has twin motivations here: it wants to turn checked baggage into a profit center, while alienating as few paying customers as possible. Looked at from that point of view, its actions make a bit more sense: most people will pay relatively modest sums, while the big fees will be levied on travelers using the airline as a means of transporting luggage as much as themselves.

Even so, I suspect that most passengers would still be happier with a charge-by-weight system calibrated to generate the same amount of revenue. Big heavy bags are the bane of both travellers and baggage handlers: it's not smart to incentivize their use in this manner.

Update: Joe Brancatelli emails with a good point: if airlines charged by weight, people would suddenly start developing a big interest in the accuracy of the scales at check-in counters -- which, anecdotally, are not very accurate at all. "If airlines go to a by-weight system, local weight and measures bureaus will have be involved and that will require a whole new series of rules for the scales at the airport," he writes.

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