Tuesday, July 01, 2008

Weight In the Air

This morning on the radio I heard a report about airlines charging more for overweight luggage. Or maybe they were reducing the weight limit on luggage, because charging for overweight luggage is nothing new. I came in after the report had begun and I can’t seem to find any correlating story online to fill in the blanks.

Airlines have long employed a size limit to luggage, but each increased pound an aircraft must carry decreases its fuel efficiency. This wasn’t such a big deal when fuel was cheaper, but airlines are struggling to figure out how to cover their soaring fuel expenses. Size restrictions help ensure that there will be sufficient cargo space for all of the passenger baggage on a flight, but weight restrictions directly limit fuel costs, which is one of the expenses airlines find most difficult to control.

One disgruntled passenger suggested that if airlines are going to charge per pound of baggage, it would make sense for them to charge per pound of passenger. That started me thinking. What would happen if airlines decided to charge each passenger by weight?

That might prove impractical. Airlines would likely just charge for passenger pounds in excess of an established weight limit as they now do with luggage. What would happen if airlines announced such a plan?

First off, you’d have activists coming out of the woodwork freaking out about it. I mean, nobody can be faulted for being born with a given genetic makeup. What if your genetic makeup lends more easily to obesity? Airlines would be charged with discriminating against heavier people and creating a new elite status for the petite. It’s a lot easier to change the weight of your luggage than to change the weight of your body.

I doubt any such plan would ever be seriously considered because even airline executives must realize what a bad public relations move it would be. But what if that was not an insurmountable problem? What then?

I suspect that many airline passengers would suddenly get very serious about controlling their weight. Some might opt for rail or bus travel rather than be subjected to the indignity of being officially labeled as overweight. Our national obsession with thinness (while trying to live as decadently as possible) would be further enhanced. Maybe restaurants with a larger traveling clientele would offer more options for the weight conscious.

Airlines have substantial fixed costs, significant costs over which they have little control, and relatively few costs over which they have great control. They also have limited ability to pass increased costs on to customers. US-based airlines have yet to develop a successful model for turning a profit while meeting customer demands.

Ricardo Semler, the Brazilian promoter of industrial democracy, in 2004 said of the airline industry:

“I think that is the only industry so far that has managed to make all of the
stakeholders lose. The shareholders don't make any money. The executives don't
last. The planes don't get better. The air-traffic controllers have the worst
job in the world. The crew is never happy. The pilots are on strike. The food is
just awful. There's not a good thing you can say about the business of flying.”
He forgot to mention the bizarre security rituals through which we all dutifully pass before being permitted to fly. But at least we don’t appear to be doing racial profiling, eh?

The WSJ’s Holman W. Jenkins, Jr. suggests that airlines follow the successful path of another industry with nearly the same types of challenges. Most of us are blissfully unaware that the ocean shipping industry has heavily engaged in price fixing for over a century. The reason we don’t care is because “customers actually benefited, because it made the reliable service they sought economically viable.”

Americans would never settle for airline pricing that punished passengers for being overweight. But they might settle for cartel-style price fixing if the results are better than what we have today.


y-intercept said...

I am surprised to see you writing a blog entry without any research. Democracy Lover may have finally achieved his goal of addling your brain.

Anyway, we had price fixing in the airlines industry. Just prior to deregulation surveys showed that only half of the adult American population had flown on an airline.

Deregulation caused prices to plummet and airfare came within the reach of the common man. The problems since deregulation have been of the form of so many people traveling that they keep trammeling the infrastructure to pieces.

Even after the air industry adjusts to higher fuel costs, there will be substantially more people flying today than in the grand regulated years. Flying will still be safer.

Contrary to what you say, I think the people in the air industry have fun doing what they do. Their main problem is the rush of people.

I've been trying to build data through BTS , but it appears that they only have a decade of data. The standard speil about deregulation is that before deregulation only 50% of the adult US population had been on a commercial air plane prior to deregulation. The first time I flew came after deregulation.

Frank Staheli said...

I like the fact that airlines are innovating in order to "stay afloat". Charging by body weight does seem at first like an odd suggestion, but I think that airlines should be able to use whatever pricing structure they choose.

It would be interesting to see if the effect of such a policy would be that all the skinny people fly on that/those airline(s) that have a body weight-related pricing structure.

At any rate, something's gotta change. I certainly don't like flying these days, but I have to a few times per year (related to my employment).

Cameron said...

With oil prices as high as they are, the air industry is really sweating right now. Many carriers have already gone bankrupt, and with all the additional fees being charged travel will continue to dwindle.

Besides, flying is bad for the planet.

Scott Hinrichs said...

I'm not advocating price fixing. I'm merely saying that such a model apparently works in the ocean shipping industry. Even if such a model were followed, it should be by private agreements rather than by government rule.

Y-intercept makes a very good point about the fact that air travel was far more rare (and more dangerous) in the days before deregulation. But since deregulation, airlines have had a difficult time consistently turning a profit. Have they even broken even over that time period?

One economist I read suggested that the problem is laws restricting U.S. airlines from partnering with foreign based airlines. The result is limited competition that fails to adequately serve stakeholders.

y-intercept said...

A large number of people have made a decent living providing air travel.

As for the question of profits, I've come to the realization that the stock market is not about making profits. It is about finding mechanisms for setting prices.

The stock for companies in a mature market can't rise faster than the economy as a whole because their market is fixed.

I've come to realize that one of the problems in our economy is that we place an untenable demand on companies that they always make a profit.

The untenable demand for profits creates a situation where a contracting market creates more hardship than need be.

Airlines are clamoring for regulation at the moment because the politically connected airline executives hope that an artificial market will allow them to see growing profits while the market shrinks.

What is needed is a way to let the different segments of the market expand and contract as the economy evolves.

The free market does this on its own. We have an energy crisis. Prices will rise and airlines will cut back on flights, and with luck the polar bears will be able to swim to the sea ice.