Seeking Alpha
Professor, REITs, long/short equity, macro
Profile| Send Message| ()  

Last week Spirit Airlines announced that it would start charging fees for carry-on bags this summer. Spirit described the benefits of this move as follows:

“In addition to lowering fares even further, this will reduce the number of carry-on bags, which will improve inflight safety and efficiency by speeding up the boarding and deplaning process, all of which ultimately improve the overall customer experience,” says Spirit’s Chief Operating Officer Ken McKenzie. “Bring less; pay less. It’s simple.”

As I’ve noted in previous posts, carry-on bags have become a problem on many flights. With advances in roll-aboard technology and in the face of new fees for checked luggage, more passengers are bringing baggage on board, sometimes overwhelming the capacity of the overheads. Airlines need to find a solution to that problem. Spirit’s fees are one possible answer.

I’m sure Spirit expected that some passengers and passenger advocates would object to these fees. I wonder, however, whether the airline ever suspected that it would incur the wrath of Washington?

Over the weekend, New York Senator Chuck Schumer denounced the proposed fees and sent a letter to Treasury Secretary Tim Geithner asking that he stop them. He’s also threatening legislation to prohibit them.

If you are like me, your first reaction should be to wonder why the Treasury Secretary–rather than, say, the Transportation Secretary–is the lucky recipient of Schumer’s letter. This being the middle of April, however, the answer shouldn’t surprise you: taxes, specifically the taxes that are levied on airline tickets (but not on some other fees associated with flying). The narrow issue is whether the carry-on fees should be subject to the tax. The broader issue is whether carry-on fees should be allowed separate from the ticket price.

Meanwhile, the Transportation Secretary, Ray LaHood, wasted no time in denouncing the proposed fees as well, saying:

I think it’s a bit outrageous that an airline is going to charge someone to carry on a bag and put it in the overhead. And I’ve told our people to try and figure out a way to mitigate that. I think it’s ridiculous.

So watch out Spirit Airlines; your experiment in pricing scarce overhead capacity may not be welcome in Washington, even if it does lead to lower fares and faster boarding.

P.S. The tempest over the baggage fees is temporarily overshadowing a much more interesting and important issue: the transparency and intelligibility of airline fees. Secretary LaHood touches on this in the interview linked to above, as does this article over at Philly.com’s Philadelphia Business Today. Given the panoply of fees and taxes on air travel–thanks both to the government and to the airlines–there’s a real question about whether consumers understand the full costs of flying when they make their purchasing decisions. And some airlines–most notably Spirit with its “penny” and “$9″ fares–seem to be playing on that.

Source: Ultra Trouble for the Ultra Low Cost Airline?