The High Cost of Avoiding Baggage Fees

In 2008, American Airlines became the first major airline in the US to announce they would begin charging an additional fee for checked baggage. Initially, the fees were added to offset the high price of fuel, which is an airline’s main marginal cost. However, now that fuel costs have come back down recently, it appears that baggage fees are here to stay. Unsurprisingly, many passengers adapted their behavior in response to the fees, with many passengers now opting to travel with only carry-on baggage. Advice columns have sprouted up all over the internet with tips and tricks to avoid paying fees. Some passengers have found their own creative ways of avoiding bag fees, like wearing 10 extra pieces of clothing.

On a recent business trip to Yunnan Province, China, four men undertook an enormous feat to avoid paying an additional fee. The men were carrying home 30 kilograms (66 pounds) of oranges as a souvenir. When they arrived at the gate, they were informed that if they wanted to bring the box of oranges on the plane with them, they would have to pay an additional fee of 300 yuan, or just over US$46. Determined to avoid paying the fee, the men decided instead to eat the oranges…all of them. As a crowd watched, the four men ate all 30 kilograms of oranges in under 30 minutes. Undoubtedly, the men must have felt a small sense of victory. However, their victory was short-lived, for the men forgot to factor in the effect consuming such a high quantity of citrus in such a short period of time would have on their bodies. After the four men developed mouth ulcers, one of the men proclaimed, “We never want to have oranges again.”

Discussion Questions

1. What were the sunk costs and marginal costs faced by the four men? Based on economic reasoning, was eating the oranges a rational decision?
2. Describe the circumstances under which an optimal solution would be to eat some, but not all, of the oranges. (Assume the men are aware of the potential disutility from getting ulcers.)
3. Most consumers have a strong dislike for being charged additional fees for things like checked bags. What are some of the benefits (other than revenue) of airlines continuing to charge them, even though consumers don’t like it and fuel prices have come back down to pre-baggage fees levels?

Sources: Farecompare: History of Airline Fees: Bags, Food & More, Forbes: How To Avoid Sky-High Baggage Fees, DailyMail.com: That’s one way to get around the baggage fee! Airline passenger wears 2.5 KILOS of her clothing to avoid being charged, Global Times: Travelers gobble down 30 kilograms of oranges to save on luggage fees, Photo by Alice Pasqual on Unsplash