Does Baggage Fee Policy Improve the Service Quality on U.S. Air Routes?

Presenter: hanchun zhang

Research Category: Social Sciences, Business, and Law
PI: Hanchun Zhang

This paper seeks to evaluate the impact of unbundling checked baggage fees on the U.S. airlines’ operational performance as measured through on-time arrival performance.  When facing a fee, passengers checked less bags and brought more carry-on bags, resulting in increased situations of slow boarding, slow seating and checking bags at the gate as the overhead storage space were limited, thus the likelihood of flight pushback delays and further the on-time arrival performance could be impacted negatively.  However, less checked-in bags reduced the stress of baggage handling, especially for transferring bags between different connecting flights in hub airports, this could positively impact the likelihood of on-time flight arrival performance.

I studied a sample of U.S. domestic nonstop routes between the 30 busiest airports operated by 11 major airlines over 2006-2010.  Two-way fixed group and time effect models were used to estimate the main results and marginal effect analyses were performed based on each regression model. Stepwise regressions, instrument variables, and mean-centering technique were also used in the analysis.

I show that implementing a checked baggage fee policy resulted in better on-time arrival performance for an average route, with this improvement being higher on the hub-origin routes but lower on the hub-destination routes, on the routes with a higher concentration level, and during the Great Recession.  This study is among the first to quantify the impact of checked baggage fee policy on the on-time arrival performance of U.S. airlines with the contribution of taking the heterogeneity across routes into account.