World Class Faculty & Research / October 19, 2016

How New Baggage Rules Will Affect Travelers, Airlines

SMITH BRAIN TRUST — Air passengers are poised for improved baggage handling as a result of a broader set of forthcoming rule changes announced by the White House Tuesday night on behalf of the U.S. Department of Transportation.

The DOT says it is formulating a policy requiring the refund of baggage fees to passengers if bag deliveries are substantially delayed. Moreover, new rules will require carriers to report the rate of baggage delay or loss per checked bag instead of per passenger, as well as report damaged or lost wheelchairs. The latter takes effect in January 2018, as will the provision requiring airlines with at least 0.5 percent of the U.S. market, including a number of regional or feeder carriers, to start reporting on their operational efficiency. And within 60 days, online ticket agents will be prohibited from undisclosed biasing of flight offerings on behalf of certain airlines.

“None of these new rules sound very onerous to me,” says Michael Ball, senior associate dean and dean’s chair of management science at the University of Maryland's Robert H. Smith School of Business. “The requirement to report mishandled wheelchairs is probably a step too far in regulation given that this is a relatively small segment of passengers." 

Smith School logistics professor Martin Dresner notes that the baggage fee refund policy will clarify passenger rights by standardizing a practice that varies among carriers. The DOT is soliciting public feedback about how it should define a substantial delay, whether it should differentiate between international and domestic flights and how soon a refund should be issued. “It will be interesting to see how they define ‘substantial delay’ — whether that means your bag is not with you on the flight, whether it’s more than two hours late or 24 hours late,” Dresner says. “This will determine the potential revenue loss to airlines and the extent of fees that will be refunded to passengers.”

The process, as well as the broader DOT announcement, has riled the trade group Airlines for America (A4A), which quickly issued a warning that “portions of the administration’s proposals could harm customers by reregulating how airlines sell their products, driving up the cost of air travel.”

Dresner says the A4A response is expected, but the new rules will likely not be particularly costly to carriers, especially regarding the baggage fee refund policy. “Baggage fees are now a very substantial revenue component for many carriers,” Dresner says. “But the refunds likely won’t eat into those fees significantly because the airlines generally do a good job of getting bags to their destinations on time.”

Meanwhile, the move to require reporting of damages, losses and delays per checked item instead of per passenger “significantly adds transparency because the ratio of passengers checking bags has been in decline since airlines started charging baggage fees in 2008,” Dresner says. “This change stands to favor Southwest Airlines because it doesn’t charge those fees, and therefore, has a greater percentage of passengers who check bags.”

The new requirement for smaller carriers to provide on-time reporting statistics will be a relatively modest burden on this group, says Ball, who also is co-director of NEXTOR, the National Center of Excellence for Aviation Operations Research. “The bigger impact will be the motivation it gives them to improve their performance.”

“The large carriers are very strongly influenced by these statistics in both their operational and scheduling practices,” Ball adds. “The net effect should be positive to consumers.” 



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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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