Picture this. Your best friend calls and suggests an amazing weekend getaway for you and your friends. Maybe it’s golf in Myrtle Beach. Maybe it’s a girls weekend in Las Vegas. Whatever. You call around to see who’s in and then eagerly turn on your computer to book the trip. You scour the web checking sites like Expedia, Orbitz, Travelocity and the one-stop-shop Kayak.com. Maybe you even visit a few airline websites to see if a “better deal” exists right at the source. After just a few minutes, you’ve located the best fare possible, effortlessly booked your trip and quietly said to yourself, “Isn’t the internet great?”
A few weeks later, you arrive at the airport, wait in line to check your bag and then quickly become incensed by the fact that the airline has the gall to charge you $25 to check your bag! What nerve!! You start saying things like, “It never used to be this way,” and “These airlines are totally out of control with fees these days.”
I’ll admit that there’s definitely a part of me that sympathizes with you. Air travel, despite being an incredibly efficient and cost-effective way to travel, is still expensive, and paying $25-$50 per checked bag quickly adds up–especially when traveling with your entire family!
The honest truth is this: bag fees are here to stay…because you asked for them! Today, I’m going to tell you why, and it has everything to do with the way you buy gas for your car.
Lets assume you’re on your way to work and you realize you need to get gas for your car. You pull off the highway and see two gas stations across the street from one another. Station #1 sells gas for $3.75/gallon. Directly across the street, Station #2 sells gas for $3.50, a full $0.25/gallon cheaper!
Which do you choose?
If you’re like most people, this is basically a no brainer: you choose Station #2. Gas is gas, right? It’s a commodity so you shop for price and select the cheapest gas.
The next obvious question is why on earth does Station #1 sell its gas for $0.25 per gallon more than Station #2? Isn’t this a foolish business practice?
I’d guess that either Station #1 is terrible at negotiating with its providers or–more likely–it believes there is an extra $0.25 of value in each gallon of its gas. For instance, maybe the road is really busy and the owners believe drivers will be willing to pay more per gallon in order to avoid needing to make a left turn. Maybe the station has a loyalty rewards program that makes the extra cost worth while. Maybe it believes consumers find the “super spectacular amazing performance blend” offered at Station #1 to be better than just the “Plain Jane” gas sold at Station #2.
The bottom line is that there is a segment of the driving population that believes “gas is gas.” They will choose the cheaper alternative every time. There are also other segments of the population that have brand loyalty, prefer the ease of entry in Station #1 or believe its blend is truly superior to Station #2 so they willingly pay more even when a cheaper alternative is right across the street!
It all comes down to the perceived value in the product being offered. It’s market segmentation, and that’s exactly what the airlines are doing when they explicitly charge you for checked bags, inflight entertainment, meals…or when they don’t. Welcome to the world of airline ticket pricing–a fascinating field called “Revenue Management.” (Yes, I’m a nerd–something I came to terms with long ago).
Thanks to the “wonderful internet,” consumers now have the ability to quickly and easily compare ticket prices, almost as though you had one airline on one side of the street and one airline on the other side of the street competing for your business. If all you’re worried about is buying transportation from A to B and two airlines can get you there, then why would you pay more for one over the other?
The answer is you wouldn’t. You’d choose the cheapest alternative you could find and you’d be happy…until you get to the airport and realize that what you bought (transportation) is not what you think you want or deserve (full-service airline)..even though you probably aren’t truly willing to pay for it.
You see, the airlines are getting really, really good at market segmentation and revenue management. They know that the value of a ticket constantly changes based on dozens of variables such as when you buy your ticket (three months in advance or three hours in advance), what day of the week you want to fly, what time of day you want to fly, whether you have brand loyalty or not, whether you want more space and service, etc.
They’re also getting exceptionally good at charging you for precisely what you want and not charging you for things you don’t want. So if you want simple transportation from A to B, we can give you a cheap ticket…and charge you ala carte for bags, meals, entertainment, etc. If you want full service and are willing to pay for it, we’ll include checked bags, lavish meals, luxurious accoutrements and complementary entertainment. And if you’re not willing to shell out the big bucks for first class but still want to at least occasionally have some of the nicer perks, that’s ok, too. We’ll sign you up for loyalty programs, give you frequent flier miles, allow you to earn upgrades, and lots of other frills to encourage and reward you if you are loyal and spend more money with us.
Look, nothing is free. It costs the airline money to handle a checked bag. They need complex equipment to move the bag from the ticket counter to the plane. They need employees to load the bags and track where they are. They need transportation companies to deliver the bag when it mistakenly gets sent to Omaha while you went to Orlando (Whoops! Our bad!).
All of that costs money, and it used to be that airlines would cover those costs by including them in the one-size-fits-all ticket price, whether you used those services or not. The system was simpler, but those who didn’t use the services were, in essence, partially subsidizing the cost of the tickets for those who did use the services. How is that fair to you, the leisure traveler, who carries your luggage on the plane and doesn’t use those baggage services?
Furthermore, when the airline knows you will pick your airline based on the price of the ticket, they know they need to offer you the best fare possible. They do that by charging you for products and services you want and not charging you for products and services you don’t want or use. You don’t pay for bag services if you don’t check bags. You don’t pay for an airline’s cost of installing inflight entertainment if you don’t find value in using that product. You don’t pay for meals if you don’t eat on the plane.
Today, you pay for what you use. The airline experience is being “unbundled.” Yes, it can be frustrating to pay $25 for a checked bag, but it’s really just giving you more choice! And that’s exactly what your purchasing patterns told the airlines you always wanted!
Do you still think bag fees are ridiculous? Leave a comment and tell me why.
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