If you know me, you know that I am always talking about airlines… from operations, to customer experience, to loyalty programs, to pricing and route strategy. (Some of those who went to business school with me might remember my explanation of how airline deregulation led to the growth of the sugar beet industry.) In every case, you can call me an enthusiast.
I was having a conversation with a friend this evening about customer experience in the airline industry and the discussion turned to baggage.
Ultimately, I think that the way most airlines think about checked baggage is misguided and leaves some huge opportunities on the table. Rethinking checked baggage provides opportunities for both operational and customer experience improvements.
Airlines say baggage fees are a crucial source of revenue. This is wrong.
Ever since American Airlines started the checked bag fee party in 2008, it has been industry orthodoxy that checked bag fees are a critical component of airline revenue. I believe that this assumption should be challenged.
According to the Bureau of Transpiration Statics figures, Major US. Domestic airlines earned $3.6B in passenger baggage fees in 2018. That may seem like a large amount of money, but consider that their total passenger revenue for airfares, freight, and ancillary services was $124.5B, meaning that baggage fees make up less than 3% of their revenue.
Even this figure is likely overstated, as it does not account for the fact that low cost carriers often charge both for carry-on bags and checked bags and that those bag fees are effectively a component of their airfares.
Far from being a large component of revenue at most mainline airlines, baggage fees are simply an opportunistic squeeze on their customers wallets. Airlines get pennies, but at a cost to customer experience and operations.
Operational gains from checked bags are huge.
Most people familiar with the airline industry understand that one of the reasons Southwest’s boarding process goes so smoothly is because fewer people carry on bags, due to their free checked bag policy. (A policy that their new CEO has said is staying, full stop.) But why is this?
It comes down to the fact that separating bags from customers means that bags can be processed asynchronously. When it comes to baggage, there are two deadlines that matter: When the bag gets delivered to and loaded on the plane and when the bag gets delivered to the bag carousel.
Further, when you separate customers from their baggage, it reduces a number of customer and operational bottlenecks:
- Screening baggage and passengers synchronously at checkpoints.
- Transporting baggage through the terminal.
- Passengers handling their carry-on bags, causing boarding delays and lengthening deplaning.
- Gate-checking excess bags at the end of the boarding process.
- Valet checking and claiming bags on regional flights.
- The amount of space taken up by bags in airport boarding areas, airline lounges, restaurants, in trams, and on moving walkways.
I’m sure that I could come up with more, but you get the idea; bags carried on board and through the terminal by passengers cause bottlenecks all over the place.
Airlines might be able to add additional flights to their schedule by turning planes faster. They could service more customers in their lounges. They could deal with fewer misconnects due to people waiting for valet checked bags.
By getting most passengers’ bags back under the plane and reducing the above bottlenecks (and more) could airlines gain back a 3% gain in operational efficiency? Absolutely.
An opportunity to delight customers.
Of course, I think that there is an operational case to be made for getting baggage under the plane, but I also believe airlines are missing opportunities to delight customers.
I recently returned from a trip to Alaska, which included travel on the Alaska Railroad. When I checked baggage in at the train station, the agent asked me which hotel I was staying at in Denali. I told her that I was staying at the Grande Denali Lodge, and she offered to check my bags to the hotel.
I started thinking… why don’t airlines do this? Would I pay an additional $25 to check my bags in Minneapolis and have them delivered to my hotel at the start of my business trip? Absolutely!
Airlines already have the infrastructure to do this; if your bags are delayed, airlines will use a courier to deliver your bags directly to your hotel or home. Why not take advantage of this infrastructure and offer this as a service? Many airlines even have partnerships with large hotel chains, which means they likely have the ability to ensure quality of service if you stay with their preferred hotel chain. Think of the cross-sales opportunites!
Of course, this is only one idea. A study of customer experience, behaviors, and preferences, combined with a little bit of design thinking could probably reveal myriad ways to use checked baggage to delight customers.
At the end of the day, the major airlines you know and love (or not) make most of their money from passenger fares, not checked baggage fees. As we are emerging from our pandemic lockdowns and people start traveling again, airlines have an opportunity to rethink parts of their business. I think that how they handle baggage deserves such a rethink.
Changing how airlines charge, process, handle, and incentivize checked baggage provides an opportunity to improve both customer experience and operational efficiency. Airlines that can figure this out will enjoy a double-win of better operations and increased customer loyalty.