Most people only look at the revenue side of the baggage equation, because that's the easier thing to see. Airline Y pulled in one hundred gabillion (it's a real number in my imaginary world) dollars in bag fees last year. That helped offset the fare declines thanks to the recession. Hooray!
Yet there are two very big pieces missing when you do the math that way:
First, there's the issue of customer satisfaction. People hate bag fees, so if they have another option, this is likely to push them toward it. That's exactly what Southwest has been banking on by continuing to offer two free bags. It's only in the last few months that the airline has started marketing that fact effectively, and Southwest has made some great strides in revenues lately. Are they connected? Southwest says yes, it is poaching customers from other airlines because people hate the fees.
That's great for Southwest, but the other airlines continue to show incredibly high load factors, so it's not like people are running away in droves here. Still, the fact remains that people hate bag fees, even if they're willing to pay them. Southwest and JetBlue are the only airlines in the US that offer the first bag to be checked without charge, so it's not like there are a ton of options for many people who want to shift their business anyway.
The other issue is one of costs. On the surface, it wouldn't seem like there would be much cost associated with a bag fee. All you need to do is make sure your IT infrastructure has the capability to charge. Since airlines already charged for excess baggage or overweight/oversize bags, this was already in there. Perfect, right?
No. I was on a flight recently that had several open seats, yet the flight attendant announced that every seat was full so people needed to put bags under their seats if they could so that everyone's bag could be accommodated. Why? Because people are carrying on more and more bags now that it costs money to check them.
When people start bringing on more bags, it causes a lot of problems. First of all, they don't all fit. That means the airline needs to check more bags at the gate. That obviously angers the customer and that can contribute to a negative experience, but it can also slow things down. I've seen jet bridges littered with roller bags that didn't fit. Ramp agents have to come up, grab those bags and put them on the plane. If this happens enough, it can require more employees. It also slows down the boarding process.
People board the plane and put their bags up in the bins. With more bags, it takes longer for people to put the bags up and that slows down boarding. Then if the bags don't fit, they have to bring them back out to the jet bridge to have them checked. If the flight attendants are quick, they'll block people when they try to board, but that still causes arguments and slows things down.
Some of the pain is offset by having fewer bags to handle that were checked in the first place, but those are bags that can be handled in advance. That's certainly more ideal than dealing with an avalanche of bags that only arrive when people start boarding.
The big question, of course, is whether these fees end up costing the airline more in lost business and higher operating costs than they bring in with revenue. Southwest seems to think that's true, but the others do not. I'd like to think Southwest is right, but I'd also like to think that the other airlines are smart enough to measure this accurately. Maybe I've set the bar too high.