Luggage Forward Flying: How to Restore Passenger Confidence and Carrier Profitability

You may know of Peter Greenberg’s baggage handling philosophy. In a post on solving the lost baggage blues he famously said “There are two kinds of baggage: Carry on and lost.” His comment pokes fun at the airlines’ “mishandled baggage” problem. But there is another option. Must airlines carry passengers' baggage on the same plane?

HISTORICAL PERSPECTIVE
My last post in this series on airline mergers was ‘Power Offers’: Turning Airlines’ Mistakes into Value-Added Services. In it I reported that reuniting passengers with their mishandled baggage cost the airlines $3.8 billion in 2006. That represented about two-thirds of their 2007 profits. And the cost of mishandled baggage is bound to be greater in 2008. The way things are going with fuel prices it likely will exceed worldwide profits. This makes mishandled baggage a major problem. Not to mention the passenger frustration generated by mishandling their baggage.

The idea of ‘Power Offers’ is right out of the pages of a new book by J.C. Larrache: The Momentum Effect. My posts based on this concept have produced some serious thought by readers. For example, a Senior Business Analyst [S.B.A.] for one of the legacy carriers sent an email to me with a lot of really interesting comments on airline services in general and baggage handling in particular. For historical perspective the S.B.A. offered these thoughts:

If you look at the history of airline service, you can go back to a day when airlines HAD to provide as many incentives as possible to get people to use an airplane in the first place. I think a lot of these services are rooted in the days when air travel was not as reliable, and there was a "risk" associated with it. Airlines needed to provide a service level that may have been above what was really required. Once the precedents are set, it's hard to peel back any services.

LUGGAGE FORWARD FLYING
In my last post I also suggested that Continental Airlines (NYSE: CAL) management should explore a partnership with Luggage Forward. Their services could be bundled into CAL’s online reservation system to create a value-added baggage handling option and thereby increase revenues as well as customer satisfaction. It suddenly became clear from the comments of my readers that an incremental step by a single carrier would be too little too late.

In this post I propose a bold bid for luggage forward flying: Remove passengers' baggage from the air transport system worldwide. Suppose all the major carriers were to enter into a partnership with FedEx (FDX), UPS (UPS), DHL and the other shippers with Luggage Forward operating as the corner stone in a worldwide baggage handling solution. This would remove passenger baggage handling from airports and passenger carriers altogether. You should check out their baggage booking technology on the company’s website.

Why propose this bold step? The extraordinary challenges faced by the air carriers demand an extraordinary solution. For now let’s call this a worldwide Luggage-forward Express Shipping [LES] service. And keep in mind the double meaning: LES means more -- less hassle combined with more profitable air travel.

I know it sounds unrealistic to move baggage handling our of the passenger air transport system into the express shipping system. But then again it must have sounded unrealistic to remove mail delivery from the US postal system. Here’s what the S.B.A. from a legacy carrier had to say about this idea when I suggested it to him in an email:

If we started with a clean sheet today, I could see how airlines would save a bunch of money by not accepting personal luggage. Not only would this save money, but the cargo area of the plane could be used for legitimate revenue generation. Air cargo is a good business for the airlines, so the win would be twofold - reduced costs, increased revenue. Plus, by not carrying luggage, the airlines could eliminate a real pain point for travelers. I admit, there seems to be little downside to it.

Not only would these advantages accrue, but the considerable governmental infrastructure and personnel dedicated to inspecting passenger baggage could be shifted to another pressing need in air travel: Inspecting existing cargo plus all that revenue earning cargo that would replace passenger baggage.

A whole host of questions pop up. The first ones are operational issues. The others are potential deal breakers.

OPERATIONAL QUESITONS
Here are nine operational questions that must be answered as part of the planning process. All of these questions (in italics) were raised in private email correspondence with the S.B.A. cited above. The answers are my own first take on each question.

1) What about bad weather days? The LES option avoids this problem because baggage never enters the air transportation system. If the passenger doesn’t travel, the bags are returned. If his or her travel is simply postponed, the baggage will be there when the passenger arrives.

2) Can passengers get their baggage back without paying for the shipment? Yes, this kind of risk can be covered by a “failure to fly” insurance fee built into the price. The fee would be based on the actuarial tables of cancelled flights. It would be far less than the shipping costs themselves.

3) How does the DOT or the airline track "lost baggage"? They are no longer responsible for lost baggage. It’s insured by LES for full value in partnership with a top rated insurance company. The cost would be a function of declared value.

4) How are changes to the contract of carriage handled? The agreement would release the carrier from any contractual liability for baggage handled by LES.

5) What about itineraries involving multiple airlines? The LES option avoids this problem because baggage never enters the passenger air transportation system.

6) What if a carrier is not willing to accept this as a standard practice? A consortium agreement in which all major carriers participate would be necessary.

7) Can’t passengers book their own baggage shipment with one of the express services? Yes, but they could not free-ride – consortium rates would be available only through an airline reservation system.

8) How would migration from the current model to an LES model be handled? Momentum would need to built quickly in the airlines’ partnership with LES for it to be successful. The technologies are available to support a rapid migration.

9) Would airlines be stuck with the sunk costs of all the processes built around baggage handling? No, their infrastructure would be sold to governments at fair market value to increase their capacity to inspect cargo.

DEAL BREAKERS?
Here are three questions that speak to the feasibility of the LES proposal:

Express Shippers’ Capacity. Could express shippers scale up to handle worldwide passenger baggage delivery? At first blush it seems likely they could since the top three shippers had combined revenues in 2007 just over $158 billion USD and employed 1.2 million people. That’s nearly $44 billion more revenues than the nine carriers included in my analysis of airline mergers and over three times the number of employees. What’s needed is an estimate of the number of “passenger baggage equivalent” deliveries of these express shippers.

International Consortium. What organization would have the stature within the industry to develop and administer performance standards? IATA is a likely candidate since its mission statement includes helping “airlines help themselves by simplifying processes and increasing passenger convenience while reducing costs and improving efficiency.”

Affordability. Would LES scale economies, coupled with increases in carrier cargo revenue and the elimination of mishandled baggage, drive down the cost of an express baggage service enough to make it affordable when bundled into airline reservations? This is the toughest nut to crack.

With your help I’ll try to provide more substantive answers to these questions in my next post. In the meantime, thanks for visiting.

Full disclosure: I do not hold a position in Luggage Forward or any commercial carrier or shipper. I am not being paid for these posts, nor do I have any prospect for future payments from any of the companies that might be involved.

Comments

[real_world:]

Instead of contacting an SBA at the airline, next time I suggest you contact a person in flight operations.

Using CAL as an example, please tell me how FedEx, UPS, and DHL are going to support the 13 flights a day just between Houston and Dallas. What are they going to do, fly parallel to each CAL airplane with the luggage? If not, how does each passenger arrive with his/her luggage in Dallas?

The answer is FedEx, UPS, DHL, and USPS all currently rely on the airlines to support their overnight service today. So, the luggage would wind up right back on the airline's planes.

Or worse, on the next available flight, which means you'll be waiting for it.

2008 Apr 21 03:31 PM

[Victor Cook:]

real_world,

Somehow you missed the underlying meaning of the LESS is more concept. And in doing so gave me an opportunity to clarify the issues. I’ll try to explain by beginning with the statement in JC’s book that jump-started this entire line of thinking about creating ‘power offers’ in air travel:

”For [passengers], less should mean that they get exactly what they need and nothing more, with no superfluous elements that create complexity and could destroy value (p.27).”

Checking baggage is one of the “superfluous” elements in air travel that “creates complexity” through check-in and pick-up and “destroys value” through mishandling and loss. The passenger benefits of not checking baggage are outlined on the Luggage Forward website in the section titled …why forward luggage?

… avoid carrying your luggage or sports equipment to and from the airport

… bypass long check-in lines

… don't pay excess baggage fees

… eliminate the possibility of the airline losing your luggage

… skip the wait at baggage claim

… have your luggage waiting for you at your destination

In a trip between Houston and Dallas these activities easily consume more time that the flight itself. Not to mention the hassles involved. By the way, if a Luggage Forward passenger's baggage shipped “within the United States is delayed, Luggage Forward will provide reimbursement of expenses of up to $200.00 per day per Item until the day the delayed Item arrives.” With this kind of luggage performance standard you can bet that very few LES travelers would be left “waiting for it” at their destination.

Your comments skip right over these passenger benefits. It appears you want to make the reader believe the idea that “parallel” flights by an express shipper are both ridiculous and unnecessary. It’s not. In fact it’s one of the subtle virtues of the LES option: the specialization of labor kicks in.

The shipment of packages compared with people make dramatically different demands on the carriers. FedEx, UPS and DHL specialize in packages. It’s obvious that package shipping is both easier to manage and more profitable than the shipping of people. A telling statistic is that in 2007 these top three express shippers generated $122.7 million in revenues per aircraft per year compared with nine air carriers’ $35.5 million. That’s 3.5 times more revenue for express shippers per plane per year. And packages are never “unhappy” about how tightly they are packed into the aircraft!

On the other hand, airlines are in the business of moving people, not bags. According to the DOT scheduled U.S. airlines flew 18.7 million hours in 2007 with no passenger fatalities, but they mishandled more than 5.1 million bags.

Finally, suppose your assertion that express shippers “currently rely on the airlines to support their overnight service …so, the luggage would wind up right back on the airline's planes” is correct. Here again, your comment overlooks a fundamental benefit of the LES is more option. That baggage winds up on the airlines’ planes as cargo, generating revenue at market rates based on weight and distance traveled.

Even if your assertion is correct, passengers are free from the curse of checked baggage and the carrier earns money on the shipment! Actually, I suspect the top three express shippers use passenger carriers to supplement their own fleets only when capacity is pushed to the limit, as may be true during holidays. If you have data to the contrary, please post it your reply.

Thanks for your comments.

~V

2008 Apr 22 10:54 AM

[Concerned T...:]

Actually If you are interested in shipping your luggage, Baggage Quest is the most economical, user friendly and well managed company in the industy. I shipped my luggage to Dubai UAE with no hassel and all I had to provide was my personal information with regards to destination, origin, items being shipped, dates and a copy of my passport.
I looked over Luggage Forward but they had poor customer service, a confusing website and log forms of personal information. The airlines should look into Baggage Quest.
Sorry Luggage Forward in my opinion, your not the next wave in travel. Thanks,
A concerned traveler!

2008 Apr 24 04:13 PM

[Victor Cook:]

Concerned Traveler,

Thanks for your tip on Baggage Quest (BQ). Since I was not aware of this option I checked out their website. I noticed that both services are private companies looking for investors.

The front page of BQ looks just like Luggage Forward’s (LF). But, as you say, there are some important differences. For this reply to your comment I priced a one-way trip from ZIP 10023 to 33464 on April 30, 2008.

Like you, I found the LF pricing screen confusing. I think the main reason for the confusion is that it gives me more options. BQ has no detailed pricing screen. They specify a Platinum Service next-day delivery date -- without a pick-up time -- for $280. On the other hand the Express Service in LF’s pricing screen lets you select between a standard two hour pick-up time (i.e. 1:00-3:00) for $259. In addition you can specify an exact time (i.e. 1:00) on pick-up date for an additional $45 – or a total of $296 .

Currently both services are pretty pricey – several hundred bucks for same-day pick-up and next-day delivery. I’m sure these prices are a result of their relatively small scale of operations. See my latest SA post for a take on what next day service might cost in a large scale operation based on partnering with one or more major carriers.

~V

2008 Apr 28 11:23 AM

[paleolith:]

Interesting thoughts, but way too optimistic about Luggage Forward. LF is clearly in the category of concierge service, and as such has no bearing whatever on the matter of checked baggage. The point of checked baggage is that, when things go right, the baggage arrives with you. (And in about 25 round trips in the past two years, this has always happened for me, albeit a couple of times just barely.) The BEST that LF offers is next-day, and when the airlines deliver checked baggage the next day, we complain bitterly.

And in fact, LF doesn't even operate on weekends and holidays! The result is that when I priced a typical trip from Florida to California, two small bags, three-day service (paying for overnight due to weekends), was $524. More than many of my plane tickets.

Investing in a US version of the TGV looks better and better ...

Edward

2008 May 01 10:46 PM

[Tamara:]

This is all very interesting... but this concept leads me to believe hotels would be forced to get into the baggage claim business. I doubt they want to add that to their list of services. Held baggage can take up a lot of space... something hotels pay quite a premium for, especially those with a prime address. Conversely, airports pay less per square foot, since they are typically located in outlying areas. Unless I missed something, you sort of skipped over this important detail.

Also, if you're traveling to a remote location in a third world country, where would your bags end up? In a coconut tree? On the fishermen's boat rowing you to your private island? With the border patrol people?

One thing I do find comfort in when depending on the airline to handle my baggage is that my baggage has been held in secure locations. The only people who could tamper with it or steal it would be airport staff. I rely on the fact that these people are screened for employment and monitored by camera. Having the baggage actually leave the airport not on an airplane opens up all sorts of variables for loss and theft.

To me it seems like lots of critical details are missing. I like the idea overall, but it does seem overly optimistic.

2008 May 07 05:50 PM

[answerman:]

Mr. Cook

Everyones potential soulution to this problem still seems to be the frantic attempt to put a bandaid on a large wound. I've begun a buisness that brings the surgeon into the equation. Not a perfect metaphor but sufficient to establish scale. For the sake of non-disclosure, I'll restrain from providing specifics just now. If you'd like to speak more about this semi-directly I can be reached at [e-mail]...

2008 Jul 01 01:06 PM