That's a lot of money.

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Baggage Fees, Office Theft and Cutting Costs

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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When I was young and unversed in the economic ways of the world, I temped for an office that was in the middle of a cost-cutting drive. One of the ways it decided to cut down on costs was to strictly control access to office products. For example, you were issued a single pen, and to get another one, you had to turn in the previous pen you'd used up.

You can imagine what happened next. Or if you can't, I wrote it up a few years ago:

Needless to say, this did cut down somewhat on the pen outlay. However, it diverted considerable employee energy into pen-loss mitigation strategies. As soon as one person misplaced their pen, pen theft blossomed. As did the gray market in pen security equipment. By the time I arrived, employees were spending a considerable portion of their day looking for ways to indelibly mark their pens as their own, and the rest of the time trying to steal someone else's poorly marked pen.

The lesson I took away was this: You can imagine lots of ways to cut costs, but many of them will turn out to be more trouble than they are worth.

I thought of this as I read Joseph Stromberg's piece on how airlines charge for luggage. The problem he is addressing is real: too little overhead space. And one of the reasons that we're all trying to pound our bags into the limited available real estate is that people are trying to avoid those pesky baggage fees.

Stromberg argues that this happens because airlines are charging for luggage all wrong. The real cost of luggage is weight, he says. But they don't charge you anything if you load an entire set of hand weights into a carry-on and haul it into the passenger cabin. (Though you might throw out your back when you're trying to get that bag up over your head.) They only charge you for the weight of checked luggage -- which means that people have an incentive to pack a lot into a carry-on. Why not charge people for the weight of carry-on bags, too, to even out the distortions?

There are two problems with Stromberg's argument, one small and one large. The small problem is that weight is not the only cost of luggage, and avoiding fees is not the only reason people check their bags. Many people (including me) prefer carry-ons because we'd rather not waste time standing around the luggage carousel, trying to distinguish our bag from the 75 other black roller suitcases gliding past us. And bags don't merely cost weight, but also real estate, which is very limited on a plane. If they are checked, they also add extra costs for the labor needed to tag them, sort them and pop them into the cargo hold. So even if we charged by weight, we probably wouldn't get the optimal allocation between carry-on and checked bags, where "optimal" is "the people who want it the most getting the carry-on space, and everyone packing with an eye toward the full costs of transporting their bag from Point A to Point B."

Even if it doesn't eliminate the distortions, Stromberg's plan might reduce them. That brings us to the other major problem with Stromberg's idea, and the reason for my mildly amusing pen anecdote: enforcement costs.

First of all, there is the direct cost of actually weighing every single thing that people are carrying onto the plane. Right now, if you aren't checking a bag, you go to the ticket kiosk, print out your boarding pass and trot right over to security. Under Stromberg's plan, every single person with a plane ticket would need to stand in line to have all their bags weighed. Standing in line is obviously unpleasant. Minimizing that unpleasantness would require more check-in staff to weigh everyone's bags and make sure they aren't, say, strategically leaving a carry-on with the person who dropped them off, then casually picking it up before they head over to be frisked by the TSA. Before I sign on to such a plan, I'd like to see some numbers indicating that the fuel savings would exceed the added costs of weighing every single bag. I suspect not, especially in these days of falling oil prices.  

Then you have to consider the indirect costs: What will people do to avoid the new fees? I suspect the answer for many is "wear stuff instead of packing it," which would be great for the manufacturers of cargo pants but rather hard on fellow passengers sitting next to someone who's constantly squirming around while he tries to figure out which of his 18 pockets contains his pen. And you really wouldn't want to be standing behind that guy when he empties his pockets to go through security. 

Another answer might be "That's the last straw. Flying is just too much hassle; I'd rather drive." Environmentalists might cheer, and traffic engineers might cry with dismay, but whatever your reaction, I wouldn't call this necessarily more efficient, and the airlines would not be happy about the lost sales.   

The economics literature is full of simple, elegant solutions that don't work. And many of those solutions founder on the same thing: transaction costs. Market interactions are great, but they are also expensive. Minimizing their costs often takes priority over controlling other costs, such as reducing your expenditure of pens or fuel. If you don't keep that in mind, you can save your way to bankruptcy pretty fast.

  1. In fairness to Stromberg, Spirit Airlines does charge for carry-on as well as checked luggage. But the whole Spirit Airlines value proposition is the cheapest possible ticket, with the maximum possible hassle. Many airline passengers are not willing to make this trade. And even Spirit allows one free (small) bag, and it does not appear to weigh the carry-ons, presumably because this would require everyone to wait in line for the scales.

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To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net