Thursday, October 15, 2009

Imperfect Substitutes

When airlines started adding fees for checked baggage, many people assumed that passengers would shift their business to carriers that reject such fees, like Southwest and JetBlue.

Christopher Elliott cites several studies that have analyzed that idea, and guess what? It isn't true. I'm also completely unsurprised.

People assuming that passengers would change their behavior made their assumptions on the basis of a premise that different airlines are perfect substitutes. Those of us who travel tens or hundreds of thousands of miles a year know better. Two factors drive airline selection:
  1. Convenience. Which airlines are strongest at your preferred airport (which is usually but may not be your closest airport)? People like more flight options, especially direct flights.

  2. Loyalty. Frequent flyers get more benefits from concentrating miles in one or just a few programs, and those of us with elite access (who generally pay no bag fees anyway) are particularly likely to go with our preferred airline or one of its partners, even if it costs a few bucks more.
Now, every now and then, an airline tries something so outrageous that it does take a hit. U.S. Airways ran into that last year when it tried to charge for beverages. No one followed suit, and free drinks returned to the aisles.

But not everything is so clear cut. Continental, after all, is the only airline in the United States -- legacy or low-cost -- that still serves free meals in Coach. Notice that plenty of people fly with other airlines.

My apologies to Southwest and Jetblue. In an age where practically everything is a carry on, checked baggage fees just aren't enough of a hassle to drive away passengers.

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