Thursday, December 18, 2008

Baggage Fees and Government Cheese

(Posting during another electronic medical records class. I still haven't figured out how to include links, so I'll clean these posts up later. sorry)

Earlier this year, most airlines began charging passengers $15 for their first checked bag, as well as increasing fees for subsequent bags. The reason given by the airlines when they introduced these fees was increased fuel costs at a time when oil was $147 a barrel.

At the time of this post, oil is trading at $38.97, which is down over 70% from its peak earlier this year. Jet fuel prices have fallen 60% since July. And yet, airlines are still charging the same fees that they added to "cover increased fuel prices".

Why haven't these charges been rescinded? It's because consumers have already gotten used to the idea of being charged for baggage; they aren't mad about it anymore, so airlines will keep making them pay it, even though the supposed rationale for the fee is long gone.

Similar to the inertia of baggage fees, government programs, once enacted, are very difficult to get rid of because people become accustomed to them. Social Security and Medicare were controversial programs when they were first enacted, and it wouldn't have caused a huge political upheaval if they were never passed. Now that we have these entitlements, however, there would be senior citizens rioting in the streets if the programs were seriously threatened.

This concept shows the potential for huge and long-lasting change Obama and the Democrats in the next few years. Government-subsidized health insurance is a hot issue right now, but once people have a government insurance card in their wallet, they'll be much more likely to favor the program and support candidates who will protect it.


westamastaflash said...

Most airlines are still losing money - any place to maintain cash flow is necessary. It's much easier for a profitable company to dump fees to show a difference over competitors than for a government to dump a program (since they *have* no competitors).

PoliticalDoctor said...

You've got a combination of less demand (due to bad economy) and decrease in costs (due to falling fuel prices). It's a clear and obvious market failure that prices haven't come down