An airline is deciding whether to raise its checked-bag fee. How would you think about it?

Can I ask what's driving this? Is it a push for more revenue, or are costs going up? And how big a raise are we talking about? I'd think about it in three parts. First, the direct effect on bag revenue. That's the number of bags checked today times the new fee, less the bags people stop checking. How many stop is the number that matters. Second, the effect on ticket sales. Some customers might switch to another airline. I'd want to estimate how many, because a lost ticket costs far more than a bag fee earns. Third, the operational effects. There could be some impact on operations and costs. Then I'd add those up and compare against what competitors are likely to do. I'd start with the revenue math, since it's the easiest to pin down. Do we have bag volumes?

Can I ask what's driving this? Is it a push for more revenue, or are costs going up? And how big a raise are we talking about? I'll assume it's $5 more on a $30 fee and the goal is profit. I'd think about it in three parts. First, the direct effect on bag revenue. That's the number of bags checked today times the new fee, less the bags people stop checking. How many stop is the number that matters. If the airline checks 20 million bags a year, $5 is $100 million before any drop-off. To estimate the drop-off I'd look at what happened the last time the fee went up. Second, the effect on ticket sales. Some customers might switch to another airline. I'd want to estimate how many, because a lost ticket costs far more than a bag fee earns. It depends on the route. Where they compete with a carrier that includes bags, they could lose bookings. Where they're the only nonstop, much less. I'd also check who's exempt. If loyalty members and cardholders don't pay, the fee lands on the most price-sensitive flyers. Third, the operational effects. Fewer checked bags means lower handling cost. It also means more carry-ons, fuller bins and slower boarding, and a late departure is expensive. Then I'd add those up and compare against what competitors are likely to do. If rivals match the increase, most of the switching risk goes away. My starting view is that a small raise is profitable if competitors follow. I'd start with bag volumes by route and the history of past increases. Do we have those?