Fairness Norms Breaking Down at the Airport - and Good Riddance!
Strange as it sounds, firms often give stuff away. Sometimes the reason is that the good is so cheap that it’s not worth charging charging for it. See: water at restaurants. Other times, though, firms give stuff away to appease consumers’ misguided sense of fairness. See: unlimited hours of table space at popular restaurants on Friday night. Inefficiency is the result.
Funny thing: During my flights to and from Chicago for the IHS seminar (BTW: It was a complete blast), I noticed that airlines’ pandering to the public’s misguided sense of fairness seems to be breaking down. Two big examples:
1. Airlines (or at least United and Air France) are now charging extra for additional and overweight baggage. Lots extra. Under the old rules, consumers had little incentive to take the marginal costs of baggage into account. Now there’s a big incentive.
2. I missed my flight this afternoon. (But it was probably worth it. Yum). Instead of just putting me in a standby queue for the next flight, though, the airline guaranteed me a seat for an extra $75. It was a load off my mind – otherwise I would have been mortally afraid of being delayed for Capla-Con! More importantly, though, this was a big step in an efficient direction.
I strongly suspect that rising fuel costs are behind these changes. Airlines know that – one way or another – consumers are going to be upset about price increases. But airlines seem to think that consumers will be less upset about “unfair” surcharges than “unfair” fare increases. In short, it looks like high fuel prices are making airline pricing policies more efficient. Who woulda thunk it?