Spirit Airlines Combats the Tragedy of the Overhead Bin

As any frequent flyer knows, the competition for overhead space is tight. As I noted a few months ago (“The Warped Economics of Carry-On Luggage“), the situation has only become worse since airlines started charging fees for checked luggage. Budget-conscious travelers caught on quick and started carrying on more of their luggage.

In economic terms, the basic problem is a lack of property rights to overhead space. Without those rights, there is a tragedy of the commons as travelers try to grab space before their fellow travelers (just as some guacamole eaters compete for appetizers). Particularly egregious? The passenger in row 35 who brings on two over-sized roller bags and stows them in the overheads around row 15. No, I’m not bitter.

One solution to this problem would be to create property rights to overhead space. But that would be hard to operationalize.

Another possibility–which Spirit Airlines announced today–would be to charge for carry-ons. Spirit announced:

In order to continue reducing fares even further and offering customers the option of paying only for the services they want and use rather than subsidizing the choices of others, the low fare industry innovator is also progressing to the next phase of unbundling with the introduction of a charge to carry on a bag and be boarded first onto the airplane.

The carry on fee ranges from $20 to $45, the same or more than the fees for a single checked bag (fees for multiple bags may be higher). Personal items (i.e., the things you put under your seat) remain free.

Note how Spirit frames this as helping the airline reduce fares. In the future, I hope some enterprising economist studies the different bag pricing approaches that the airlines use to see to what extent higher bag fees–checked or carry on–translate into lower fares and either more or less crowded overhead compartments.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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