Baggage Fees, Operational Performance and Customer Satisfaction in the US Air Transport Industry

In recent years, there has been a “de-bundling” trend in the US airline industry, where specific services that used to be included in a ticket fare are now priced separately. Although a major reason for these fees is to raise revenues for the airlines, the fees may also impact the operations of carriers. Among the new fees implemented by most US carriers is a payment for checked baggage. The aim of this paper is to analyze the impact of baggage fees on airline operational service, as measured by flight delays, mishandled baggage rates and the rate of customer complaints. We use data from the US domestic air transport market over the period 2004–2012 and estimate a system of seemingly unrelated regressions. Our results show that, on average, an increase in baggage fees leads to a decrease in the mishandled baggage rate, to a reduction in the percentage of delayed flights, and to a decline in the rate of customer complaints. These results are in line with the idea that the checked baggage fee has improved airline operations and, perhaps surprisingly, customer satisfaction.