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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2022 Annual Theme: Stakeholder Capitalism
Market-Based Solutions to Vital Economic Issues
Aug 11, 2016

Do Bags Fly Free? An Empirical Analysis of the Operational Implications of Airline Baggage Fees


In 2008, the majority of U.S. airlines began charging for the second checked bag, and then for the first checked bag. One of the often cited reasons for this action by the airlines’ executives was that this would influence customers to travel with less baggage and thus improve cost and operational performance. A popular customer belief, however, is that airline departure delays got worse due to an increase and size of customer carry-on baggage. A notable exception to the charging for checked bags trend was Southwest Airlines, which turned their resistance to this practice into a “Bags Fly Free” marketing campaign. Using a publicly available database of the airlines’ departure performance, we investigate whether the implementation of checked bag fees was really associated with better operational performance metrics. At the aggregate level, using all publicly recorded U.S. flights from May 1, 2007, to May 1, 2009, we find that the airlines that began charging for checked bags saw a significant relative improvement in their on-time departure performance in the time periods after the baggage fees were implemented. Surprisingly, we also find that airlines that did not charge for checked bags also saw an improvement, although not as big, when competing airlines flying the same origin-destination city markets implemented the fees. The improvement in on-time departure performance was the largest for flights during peak evening departure time blocks.

Note: Research papers posted on ResearchGate, including any findings, may differ from the final version chosen for publication in academic journals.

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