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Baggage burden: Searching for a solution to airlines' costly habit of losing luggage

March 17, 2008----The trend of airlines assessing fees for checked baggage is growing, highlighted by two US legacy carriers recently deciding to limit economy passengers to one "free" checked bag while charging $25 for a second checked bag on a large portion of flights beginning May 5.

In March 2007 Baggage Blues, ATW detailed the rising costs borne by airlines related to transporting billions of suitcases, boxes, consumer goods and pieces of sporting equipment each year. Carriers' deteriorating baggage handling record also was chronicled; IATA estimates that mishandled baggage costs the global industry $3 billion annually.

A year later, the baggage handling situation has not improved, according to SITA, the IT provider that specializes in tracking airline baggage. It has estimated that 30 million bags are mishandled annually, a figure that is rising. "We have mishandled more bags compared to last year," VP-Airport Services Catherine Mayer says. "But I do believe there is more of a focus on the resolution of this problem than in the past." Driven in part by "the negative attention baggage is getting in the press," the industry appears to realize that changes are needed, she says.

SJ Consulting President Satish Jindel, a leading advocate of airlines moving to an "a la carte" pricing structure, praises United Airlines and US Airways for their decisions to start charging economy passengers $25 for a second checked bag on many of their routes, but says they and other carriers need to go further. "They should have charged more -- $25 doesn't cover the cost of moving the bag," let alone enable airlines to earn a profit from the carriage, he says. "They're running a business. Everything they do, they should make money off it."

He also argues that carriers need to take measures regarding carry-on luggage simultaneously in order for passengers' baggage habits to truly change and lower the overall cost burden. "They should limit economy passengers to one carry-on and business to two, and charge for checked bags," he says. "That way passengers will bring only what they need and airlines will cover the cost of transporting these bags. People have found it acceptable to pay for meals. Passengers will adjust to this too. It will make the system more efficient for everyone [including passengers] and lower costs for airlines. . .The industry is moving in the right direction at a snail's pace when the [baggage handling] problem is deteriorating at a hare's pace."

IATA, noting that "baggage handling systems and related processes are working at maximum capacity," has launched a Baggage Management Improvement Program and this year aims to find a combination of six airlines and airports to participate. SITA has signed on to contribute to the program. The intention is "to focus on a few of the airports/airlines with major problems and bring in solution experts. . .to work on identifying and resolving the specific problems," Mayer explains. "This sort of industry collaboration and effort is what is required."

IATA and SITA are pushing for greater integration of baggage handling systems to "enable real-time tracking of bags from check-in to arrival." RFID, which so far has enjoyed only limited deployment, is viewed as a technology that could help in this regard. IATA estimates that "airlines could save $733 million in baggage mishandling costs with an investment of $0.10 incremental on the cost of [RFID] baggage labels." It adds that the figure does not include "key soft benefits," such as gaining customer loyalty by giving passengers the ability to find out exactly where their bags are at any given time.

Installing computer-controlled modern handling systems in airports also may ease the burden. British Airways, which has gained an unenviable reputation for mishandling baggage owing to several system meltdowns at London Heathrow in recent years, boasts that LHR's new Terminal 5 has more than 10.5 mi. of high-tech baggage conveyor belts, the largest such system in Europe. BA claims the system will allow it to lower its high mishandled baggage rate, estimated at about 25 bags "lost" for every 1,000 passengers, to about 15. The system, which has undergone intensive testing for the last 18 months, is touted as being able to handle 12,000 bags per hr. and features "trolleys" that can carry bags as fast as 23 mph. It includes a special network of conveyors designated solely for bags checked late and an area where those checked extremely early can be stored and organized so as not to slow the movement of more pressing bags.

A key to improving the process and mitigating losses may lie in changing passengers' perceptions about baggage. UA, for example, is selling its decision to charge for checked bags as a way to "offer customers choice, flexibility and low fares." US Airways President Scott Kirby says it's a matter of being "realistic" in the face of rising fuel costs and growing volumes of baggage.

Florida-based LCC Spirit Airlines, which unbundles its fares to charge for each service a passenger receives, claims that charging for checked baggage is "well received by customers because we give them options. . . they have more control over their ticket price." It also brings discipline to passengers' packing habits and means fewer bags onboard, which translates into less weight and lower fuel burn, the airline says.--Aaron Karp

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