When Baggage Fees Unbundling Was First Introduced

In 2006, when Ryan Air decided to offer a no-frill service to keep its advertised price for airline ticket low, it offered a basic service and charged for everything else. The Economist reported (this time a news piece and not a views piece), posing the question, "Why airlines have started charging for check-in bags?". The article reported (bold format added by me)

As fuel costs have escalated, airlines have been tightening up their baggage rules. Some of those rules are now being completely rewritten. British-based Flybe introduced a "fair deal for baggage" scheme on February 1st, which it says means passengers unburdened by bags will no longer have to pay towards carrying other people's suitcases. Five days later, Ireland's Ryanair announced details of a similar plan to encourage passengers to travel with fewer bags.

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Speeding up the check-in is likely to prove popular among passengers, especially those taking short trips. Flybe says only 55% of its passengers have bags to check, and it expects that number will now fall slightly. Because anything that persuades passengers to travel more lightly saves fuel and cuts the cost of ground services, other carriers will be studying this particular flight plan very carefully.

 The fairness argument appeals to the claimed 50% who do not check in bags. The airlines make this a "cost-based" argument, stating that, "if we don't incur the cost we won't charge you".
The issue is with differentiated pricing that aims to capture all consumer surplus for those who need this service and  does not reflect the cost. Consumers will view this as unfair pricing. For those who do use the service, it will  be unfair unless the airlines can show the value add that is more than the basic service that was included in the base price of the ticket.

Fairness Questions on Unbundled Pricing

There is a scathing opinion piece in The Econonist web-only edition on the Airline fees. Titled, "Come fly the fee-filled skies", the article frames the entire unbundled pricing as a fairness question wondering whether the passengers will be asked to pay for reclining in their seats or using the bathroom.

And in the midst of this malaise, airline executives have been casting around for new ways to make money—including charging customers more for “extras” that were previously embedded in a basic ticket price.

Fairness in pricing is definitely a factor that marketers should consider when unbundling. In the case of airlines, there is also considerable history behind th outrage. With the practice of "yield pricing", almost everyone views airline pricing as not "fair".

Combined with it when customers do not get the value for the price they pay, the fairness issue is going to cause outrage. For example, when United charges $50 for the second bag and still manages to lose it (albeit temporarily) the customer sees no value for the cost incurred.

Unbundled pricing is not about wringing the last dollar out of every customer without providing value. It is about identifying those with higher Reservation Price for certain components and delivering them value that is well above what they would get with bundled pricing.

This topic on fairness and consumer behavior have a much larger significance in the success of unbundled pricing. I will revisit these in the future.