Three economics tips for airlines, and why a baggage charge does not make sense

Everyone is now aware of the much criticized move by American Airlines to charge $15 for the first checked in bag, and $25 each for subsequent bags – a perfect example of the knee-jerk reactions we are getting used to from airlines. This is a one-way street for the passenger. What if oil goes down to $100 in two months? Surely the baggage fee will not be reduced. Sounds like a perfect recipe for disaster for customer confidence (if there is any left now).

Photo courtesy of http://www.worldrider.com/
Surely, there are better ways to deal with externalities than to squeeze out every nickle-and-dime out of the already exploited passenger. Airline executives in the US can learn some things from their counterparts in Asia (who’re still doing well in this environment) and also take some lessons in Economics. Here are three tips to get started: