Monday, December 8, 2008

The economics of a ski wedding and the luggage tariff

Airlines: “We’re a stupid industry led by stupid people.” –Gordon Bethune, former CEO of Continental Airlines

When I flew out to Utah this weekend, I fully intended to bring my own skis until I remember the new $50 charge each way for a 2nd piece of luggage.  Since it was going to cost $50 or so to rent skis for a couple days, and it’s annoying to lug those things around anyhow, I just left them at home.  I suppose Delta’s restrictions worked for this flight – it was lighted by the weight of my skis and poles.   The downside: I will try like hell not to fly Delta unless completely necessary.  It’s a weird policy, one that hurts more price sensitive leisure travelers more than business travelers, who tend to just have one bag.  

The flight was also delayed by a couple minutes by a guy late getting on the plane who was trying to stuff a bag that was way too big for the overhead compartment.  Everyone should be prepared for a lot of this crap on Delta flights, especially as people who don't know about the charge learn about it on the spot at airports.  And you can't really blame people - pay an extra $50 or try to stuff the bag into overhead?  

Also, I just packed one gigantic bag (we call it Big Silver) and stuffed it right to 50 pounds (on the button).  I think the tariff would make more sense if it was by weight.

Ski rentals and moral hazard: It was $2 additional at the Canyons for insurance on my ski rental.  Let’s just say that once I paid the $2, I skied in a way that I certainly wouldn’t on my own skis.  I’ll suggest that the Canyons and other ski resorts do something like $2 and even a tiny deductible.  Even if it were $5 or $10 I wouldn’t have been skiing off trails like a maniac because I would have had just a bit of skin the game.

Another idea that I came up with was to put really slow finish or wax on rental skis to reduce liability.  Speed kills, causing more frequent and more serious injuries on the slopes.  Also, $10 for a helmet rental seems a bit excessive.  I wonder if their monopoly pricing model factors in liability reduction.   There was no option to bundle in the helmet, which seems like it would be a good strategy

Gary Loveman, the CEO of Harrah’s was pretty emphatic when he visited our Economics of Information class that the ski industry was one industry that could benefit massively from information analytics and improved pricing strategies.  It certainly seems like that’s the case.  It’s astonishing how much information they could collect at the rental desk, but just don’t. 

Another reason the iPhone is amazing: sitting on the ski lift on a 45 degree day at Snowbird with one glove off, studying a PDF document with notes for my Industrial Economics final.  I’m not sure this is how Dick Schmalensee would have suggested I study for his exam, but it was way more fun that locking myself in Dewey.  

On a side note, check out this article my colleague Mike Atlas sent me about a life saving amputation using details sent via text message.   More about Mike and the amazing work he has done for in the next social entrepreneurship update.  

A few other good links:

Depressing way to look at how bad stocks have performed this year versus other years in history.

Lightspeed Venture's Consumer Internet Predictions in 2009


Rollie Peterkin said...

I recently flew US Airways to Vegas for a tourney. It is now $15 for the FIRST checked bag, 25 for the second one, and 50 for the third one. To me that's like imposing a hidden tax on airline tickets because EVERYONE checks a bag. Why not just make the ticket $15 more? Obvious answer there.

Scamming customers doesn't solve the problems the industry faces. And they now charge $2 for sodas! If you add in security, they have actually made it a huge pain in the ass to fly. All else equal, I'd rather take a train/bus/car and avoid the inconvenience.

On a side note, Gary Loveman is from Wellesley and his son was in my class. He actually coached my little league team.

Ted Chan said...

Hey Rollie,

Thanks for the comment. After I posted I read a bit more and saw some more of these fees. I don't think they think their customers are very smart. Plus, planes weren't designed for people trying to cram all their luggage in overheads - it's going to cause operational delays at some point.

I think a reasonable allocation, say 50 pounds (since the cost is really by weight anyhow), and then make people pay per pound would be a better system.