A-La-Carte Pricing in the Airline Industry - Graduate Student ...

The Start of the Ancillary Revenue MovementThe majority of the public likely became familiar with notions of ancillary revenue andunbundling in the airline industry in 2008. In February of that year, United Airlines announcedthat it would charge customers paying certain non-refundable fares a $25 fee for checking thesecond bag on domestic and Canada-bound flights (Carey 2008). Frequent flyers with elite statuson the airline (those who flew a certain amount of miles over the course of a calendar year)would be exempt from the charge, which was the first of its kind among large U.S. airlines. 3Despite initial reluctance to follow, the remaining four network airlines instituted second bagcharges within three months of the announcement.As other airlines began to match United‘s charge, another carrier took the next big a-lacartepricing initiative. In May 2008, American Airlines announced that it would extend itssecond-bag fee to the first checked bag as well. One month later, United Airlines and USAirways instituted similar first-bag fees (Maynard 2008). By the late fall, all U.S. networkcarriers, along with a large numbers of LCCs, such as AirTran Airways, had some sort of fee formost customers checking any luggage. Airlines with first or business class cabins and frequentflyer programs generally waived baggage fees for premium customers and those with elite status.Additionally, two large airlines held out (and, as of writing, continue to hold out) from institutingfees for all bags. JetBlue Airways, a low-cost carrier, only instituted a second-bag fee but stillallows customers to check a first bag for free. Southwest Airlines, the largest U.S. airline interms of domestic passenger boardings and a long-time LCC chose to retain its policy ofcharging for any bags checked in addition to the two-bag allotment.3 Some discount carriers such as Spirit Airlines and the now-defunct Skybus were charging for bags before thispoint.8