Christopher Abgande, Lee DeVaughan, Sheri LeBeau, Qiana Reynolds, Andrew Rice
Business Research Project
Dyeus Airlines, an international airline, was founded in 2013. Dyeus Airlines is facing challenging competition from other, larger airlines around the world. To compete with other airline companies, Dyeus has decided to pilot a system where the airline waives all excess luggage fees. Most airlines charge a fee for excess baggage, as well as overweight luggage, and it will be the strategy of Dyeus Airlines to waive the first two pieces of luggage from most additional fees. Due to weight restrictions of the Federal Aviation Administration, any bag over the weight of 50 pounds will be subject to a $50 fee for special handling guidelines.
Hypothesis-The Hypothesis is ?Boarding times will be faster when the first two checked bags are free.? The Null Hypothesis, then, is ?There is no difference in boarding times when the first two checked bags are free.? The Independent Variable is whether or not the first two checked bags are free. The Dependent Variable is the flight boarding times.
Dyeus Airlines independent variable is quite simple. This variable will stand alone and is not affected by any other variable. Dyeus Airlines will not charge extra baggage fees moving forward.
By not charging for two bags per ticket, it is Dyeus Airlines? belief that the boarding and unloading of the plane will be quicker, which will mean more precise timing in connecting flights. By pushing the luggage away from overhead storage, they can get the passengers in and out of the plane faster.
Literature Review- ?Passengers, airlines, airport management and industry experts all consider flight delays as one of the most important measures of service quality.? (Bubalo & Gaggero, 2015) The article investigates whether low-cost carriers can increase their service quality by improving efficiency.
Flight delays are one of the most expensive costs that an airline company may ever have to deal with. In the year 2010, researchers from the University of California reported that domestic flight delays within the US alone between the year 2007 and 2010 cost an approximate thirty-three billion dollars (Guy, 2017). To mitigate these unexpected costs, airline companies increase flight costs to have the customers pay for the costs related to the flight delay. One such strategy would be the proposed waiver on customer bags. Such a waiver would reduce the amount of time spent in loading and offloading luggage on the planes, making it easier and faster for customers to settle and reducing delays (Guy, 2017). Increased fees discourages many customers since they have to pay a lot of money for services they could access at lower prices (de Wit & Zuidberg, 2012). Companies that reduce luggage fees may end up enjoying the advantage for a long time. (Barrett, 2004).
De-bundling fees has had an enormous impact on the U.S. airline industry, with multiple ancillary fees. One paper predicts that ?many network carriers will eliminate ancillary fees, particularly as they begin to recognize how these fees can impact other system performance objectives such as minimizing the number of misconnecting passengers.? (Garrow, Hotle, and Mumbower, 2012) Another study of de-bundling ?predicts that an airline?s fares will fall when it introduces a bag-fee, but that the full-trip price (the bag fee plus the new fare) could either rise or fall.? (Brueckner, Lee, Picard, & Singer, 2015)
Many airlines charge for extra luggage for two reasons. One is fuel cost and the other is a 7.5% excise tax on tickets. According to, ?The real reason airlines charge checked fees?And it?s not what you think,? the 7.5% federal excise tax on domestic tickets applies to airfare and not to ancillary services. ?As long as airlines are able to unbundle, they get a portion of the transportation cost out from under that tax.? (Leff, 2015) The airline may be losing revenue when not charging extra baggage fees because they will not be receiving a portion of the transportation fee.
When there are charges for the amount of bags that a customer can bring, customers will generally attempt to stuff one bag in order to avoid the excess baggage fees. By looking only for the weight of the bags, we can determine the overall weight of the plane, and adjust accordingly. In 2009, the airline industry saw its worst performing year in recent memory. (Sumit, 2009) The cause of poor revenue was due in part to the economic recession that the world felt. In order to make up for lost revenue, various airlines started to charge extra fees for baggage fees. According to the USA Today article, several airlines charge up to $25 for the first bag and $35 for any additional bag. (Buleen, 2014)
Fuel hedging is when a company that uses large amounts of fuel or crude oil can purchase the oil at an agreed upon price, and will pay that price throughout the year. Many airlines choose not to utilize fuel hedging, and just pass the extra cost onto the customers. (Carter, 2012)
In 2008, airlines de-bundled ?free? baggage fees. In the article, ?The Market Structure Dynamics Created by Debundling of Airline Bag Fees,? ?the ULCCs operating in the United States domestic airline routes, have implemented in their pricing structure a higher carry-on baggage fee than their checked-baggage fees.? (Schumann & Singh, 2014) In 2013, the US Department of Transportation calculated that U.S. carriers had a revenue of 3.35 billion in checked bag fees. (Scotti & Dresner, 2015) Some airline carriers have elected not to charge for checked bags. For example, Southwest does not charge a fee for the first two bags, and Jet Blue allows one checked bag with no charge.
When customers are charged extra for checking bags, they generally carry-on bags, especially for a short trip. Checked bags slow airline turnaround time, since it takes longer for the bags to be processed, moved to another plane for connecting flights, or sent to baggage claim.
?Although passenger traffic is still the major source of revenue for combination carriers, air cargo carriage has become an increasingly important revenue source for these carriers, with some deriving 40% of their revenue from cargo operations.? (Kasilingam 1996; Zhu, Ludema, and van der Heijden 2000; Zhang and Zhang 2002; Billings, Diener, and Yuen 2003; LaDue 2004). ?Cargo delivery for these carriers is therefore heavily influenced by passenger operations, such as flight scheduling, routing, and the amount of baggage that each passenger can bring? (Kasilingam 1996; Zhu, Ludema, and van der Heijden 2000; Zhang and Zhang 2002; Billings, Diener, and Yuen 2003; LaDue 2004).
The theory behind ?Pay as you weigh? is that passengers are charged based on the passenger?s total baggage and body weight. ?Most airlines worldwide have been only marginally profitable in recent decades despite continued and rapid growth in demand for air travel? (Duganis, 2006 and 2010; Janofsky, 2008; Vasigh?et al?, 2008). According to the Economist, ?It is a fact that an aircraft of a given make and model has a strict maximum carrying capacity. There are numerous examples about the critical importance of weight and how an airline attempts to reduce weight in a flight. With fuel accounting for a large share of costs for all airlines and the price of which has risen substantially over the last few years, reducing weight can significantly contribute to improving profitability.? (The Economist?, 2011)
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Bhatta, B. P. (2013). Pay-as-you-weigh pricing of an air ticket: Economics and major issues for discussions and investigations. Journal of Revenue and Pricing Management, 12(2), 103-119. doi:dx.doi.org/10.1057/rpm.2012.47
Bhatta, B. P., Ghimire, H. L., & Nesse, J. G. (2014). Pay-as-you-weigh pricing of an air ticket: Message of media and public about the concept from a public policy perspective. Journal of Revenue and Pricing Management, 13(4), 291-308. doi:dx.doi.org/10.1057/rpm.2014.12
Brueckner, J. K., Lee, D. N., Picard, P. M., & Singer, E. (2015). Product unbundling in the travel industry: the economics of airline bag fees. Journal of Economics and Management Strategy, 24(3), 457-484. Retrieved from http://search.ebscohost.com/contentproxy.phoenix.edu/login.aspx?direct=true&db=eoh&AN=1535706&site=ehost-live doi:10.1111/jems.12106
Bubalo, B., & Gaggero, A. A. (2015). Low-cost carrier competition and airline service quality in Europe. Transport Policy, 43, 23-31. Retrieved from http://www.elsevier.com/locate/tranpol
Buleon, C. (2014, Spring). Checked Bags Around the Airline Business. Retrieved from http://traveltips.usatoday.com/southwest-airlines-checked-baggage-rules-63778.html
Carter, D., Roger, D., & Simkins, B. (2012, September). Does Fuel Hedging Make Economic Sense? The Case of the US Airline Industry. Retrieved from http:/dx.doi.org/10.2139/ssrn.325402
de Wit, J. G., & Zuidberg, J. (2012). The growth limits of the low cost carrier model.
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Garrow, L. A., Hotle, S., & Mumbower, S. (2012). Assessment of product debundling trends in the U.S. airline industry: Customer service and public policy implications. Elsevier Transportation Research Part A, 255-268. doi:10.1016/j.tra.2011.09.009
Guy, A. (2017). Flight delays cost $32.9 billion, passengers foot half the bill. Berkeley News. Retrieved 6 January 2017, from http://news.berkeley.edu/2010/10/18/flight_delays/ 8/01409171011055834
Leff, G. (2015, April 21). The real reason airlines charge checked bags fees… and it’s not what you think. Retrieved from http://http://viewfromthewing.boardingaa.com/2015/04/21/the-real-reason-airlines-charge-checked-bag-fees-and-its-not-what-you-think/
Schumann, H., & Singh, H. (2014, September). The Market Structure Dynamics Created by De-Bundling of Airline Bag Fees. Journal of Economics and Economic Education, 15(3), 186-197.
Scotti, D., & Dresner, M. (2015, October). The Impact of Baggage on Passenger Demand on US Air Routes. Transport Policy, 43(1), 4-10. doi:10.1016/j.tranpol.2015.05.017
Sumit, A., Souphala, C., Neale, M., & Johannes, S. (2014, June). Benefit-Cost Analysis Financial Regulation. Journal of Legal Studies, 43(2), 239-252.
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