Do Bags Fly Free

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Do Bags Fly Free? An Empirical Analysis of the Operational

Implications of Airline Baggage Fees
Mariana Nicolae, Mazhar Arkan, Vinayak Deshpande, Mark Ferguson
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Mariana Nicolae, Mazhar Arkan, Vinayak Deshpande, Mark Ferguson (2016) Do Bags Fly Free? An Empirical Analysis of the
Operational Implications of Airline Baggage Fees. Management Science
Published online in Articles in Advance 11 Aug 2016
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Articles in Advance, pp. 120

ISSN 0025-1909 (print) ISSN 1526-5501 (online)
http://dx.doi.org/10.1287/mnsc.2016.2500
2016 INFORMS
Do Bags Fly Free? An Empirical Analysis of the

Operational Implications of Airline Baggage Fees
Mariana Nicolae
College of Business, Eastern Michigan University, Ypsilanti, Michigan 48197, mnicolae@emich.edu
Mazhar Arkan
School of Business, University of Kansas, Lawrence, Kansas 66045, mazhar@ku.edu
Vinayak Deshpande
Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599,
vinayak_deshpande@kenan-flagler.unc.edu
Mark Ferguson
Moore School of Business, University of South Carolina, Columbia, South Carolina 29208,
mark.ferguson@moore.sc.edu
n 2008, the majority of U.S. airlines began charging for the second checked bag, and then for the first checked
bag. One of the often cited reasons for this action by the airlines executives was that this would influence
customers to travel with less baggage and thus improve cost and operational performance. A popular customer
belief, however, is that airline departure delays got worse due to an increase and size of customer carry-on
baggage. A notable exception to the charging for checked bags trend was Southwest Airlines, which turned their
resistance to this practice into a Bags Fly Free marketing campaign. Using a publicly available database of
the airlines departure performance, we investigate whether the implementation of checked bag fees was really
associated with better operational performance metrics. At the aggregate level, using all publicly recorded U.S.
flights from May 1, 2007, to May 1, 2009, we find that the airlines that began charging for checked bags saw a
significant relative improvement in their on-time departure performance in the time periods after the baggage
fees were implemented. Surprisingly, we also find that airlines that did not charge for checked bags also saw
an improvement, although not as big, when competing airlines flying the same origin-destination city markets
implemented the fees. The improvement in on-time departure performance was the largest for flights during
peak evening departure time blocks.
Keywords: baggage fees; departure delays; event study; on-time performance; airlines
History: Received March 13, 2013; accepted January 20, 2016, by Serguei Netessine, operations management.
Published online in Articles in Advance August 11, 2016.
1.
Introduction
Lines, Northwest Airlines, and US Airways quickly

matched Uniteds decision and all began charging
their passengers for the second checked bag starting
May 5, 2008. A week later, American Airlines matched
the other airlines baggage policy and, on June 15,
started charging its passengers for the first checked
bag, hoping to get more than $350 million in additional revenues (McCartney 2008). By the end of 2008,
all major U.S. carriers except Alaska Airlines, JetBlue
Airways, and Southwest Airlines2 had instituted fees
for the first two checked bags.
The financial implications were immediate, with
U.S. airlines collecting more than one billion dollars in
The once industry standard of two 50-pound free

checked bags is now virtually extinct in the domestic U.S. airline market. Today, almost all U.S. airlines
charge fees for checking a bag. On February 10, 2007,
Spirit Airlines, an ultra low-cost carrier, became the
first airline to charge for one checked bag (i.e., the
second checked bag fee), a policy that was extended
to two checked bags (i.e., by adding the first checked
bag fee) on June 19, 2007. United Airlines was the first
major U.S. carrier that announced a fee for the second checked bag,1 which was estimated to generate
cost savings and additional revenue of more than $100
million annually (Carey 2008). Citing high fuel prices,
large carriers such as Continental Airlines, Delta Air
Alaska Airlines and JetBlue Airways instituted the first checked

bag fee policy on July 7, 2009, and on June 30, 2015, respectively.
Southwest Airlines has not implemented fees for the first two
checked bags as of January 2016.
A fee was not charged if the travelers had elite status in its
Mileage Plus frequent-flier program.
1
2
baggage fees for overweight, oversized and/or extra
bags in 2008, which represents a 148% increase from
2007 (BTS 2015). In 2014, the industry set a new record
by collecting $3.53 billion in baggage fees (BTS 2015).
Ignoring these potential financial gains, the no-fee
policy was used as part of its marketing strategy by
Southwest Airlines, which saw an opportunity to distinguish itself from the competition by launching its
Fees Dont Fly With Us campaign. This marketing
campaign has been viewed as successful by Southwest, as they continue to be the only major U.S. airline that does not charge fees for the first two checked
bags.
Although the baggage fee policies are now generally agreed upon as a successful way of improving
revenues for both the airlines that started charging for
checked bags and those that did not (see, e.g., Barone
et al. 2012, Henrickson and Scott 2012), the question
still remains about the impact the policies have had
on airlines operations such as on-time departure performance. Thus, it is worthwhile to evaluate whether
a marketing strategy such as charging or not charging fees for the second or first checked bag has had
implications on airlines operational performance.
As pointed out in the popular press (see Johnsson and Hilkevitch 2011), Southwest Airlines had to
cope with a surge in checked baggage, a byproduct of
its Bags Fly Free marketing campaign. Transferring
bags between flights under an extreme time crunch
is perhaps the most challenging aspect of running an
airport hub and a common cause of delays. Departure
delays at Chicago Midway airport for Southwest Airlines were reported to increase after the checked baggage fee implementation by other airlines. Ryanair, an
Irish-based low-cost airline, claims that baggage fees
are a necessity to keep costs down, and it has been
popularly hypothesized that if Southwest is going
to welcome free checked bags, they have to expect
higher costs (Lariviere 2011). On the other hand, to
avoid baggage fees, passengers have continued to
bulk up their carry-on bags, turning the allotment of
one bag and a purse or briefcase into a two-suitcase
load. Some game the system by fully intending to
check a bagthey volunteer at the gate instead of the
counter, and thus avoid the airline fee (McCartney
2012). Baggage fees have made the overhead bin a
precious commodity and the accompanying boarding
stampede can increase departure delays.
For an airline that charges fees for the first two
checked bags, one would expect a decrease in the
number of checked bags, resulting in fewer opportunities for baggage handling problems to cause departure delays. We term this effect the below the cabin
effect, since checked bags are typically stored underneath the passenger cabin. For the same airline, however, an increase in the number of passengers who
Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS
bring overstuffed carry-on luggage with them into

the cabin can also lead to departure delays. We term
this the above the cabin effect, since the overhead
bins are located at the top of the passenger cabin.
Although most frequent airline passengers believe
that the above cabin effect dominates the below cabin
effect, this could simply be due to an observation
bias, since they observe the increase in the number
of carry-on luggage but they do not typically observe
what takes place below the cabin. Thus, whether baggage fees lead to increased departure delays for the
carrier that charges fees or does not charge fees is an
empirical question that we seek to answer.
To empirically address this question, we primarily
use data collected by the Bureau of Transportation
Statistics (BTS) from May 1, 2007, to May 1, 2009, a
time horizon that covers periods before and after fees
for the second and first checked bags were imposed
by the majority of U.S. airlines. More specifically, we
collected data on 9,174,752 domestic flights from all
U.S. airports flown by American Airlines, Continental Airlines, Delta Air Lines, JetBlue Airways, Northwest Airlines, United Airlines, US Airways, AirTran
Airways, Alaska Airlines, Frontier Airlines, Hawaiian Airlines, and Southwest Airlines. We supplement
these data with data published by the Federal Aviation Administration (FAA) and the National Climatic Data Center (NCDC) of the National Oceanic
and Atmospheric Administration (NOAA), and use
an event study methodology to examine the impact
of implementing checked baggage fees on departure
delay performance. In particular, the event that we
study is when the checked baggage fees went into
effect at each airline. We use pre-event data to forecast the normal expected departure delays for each
flight in our data set. When estimating the departure delays, we use a measure of delay that accounts
for delay propagation on flights flown by the same
aircraft (i.e., spillover-adjusted departure delay), and
follow the approach developed by Deshpande and
Arkan (2012) and Arkan et al. (2013). The difference between the observed departure delays after
the event (post-baggage fees) and the predicted normal departure delays is then assessed as abnormal
departure delays and subsequently used to test the
impact of the baggage fees.
Our study is not the first that uses data from BTS to
investigate various aspects of airline service quality.
Using more than 800,000 flights scheduled between
50 major U.S. airports, Mazzeo (2003) finds that the
prevalence and duration of arrival delays are significantly greater on routes where only one airline
provides direct service, and that weather, congestion,
and scheduling decisions have a significant contribution to arrival delays. Prince and Simon (2009) use
BTS data and find that multimarket contact has a
positive effect on arrival delays, causing delays on

the ground. More recently, these researchers find that
incumbent on-time performance worsens in response
to entry, and even entry threats, by Southwest Airlines (Prince and Simon 2015). Rupp et al. (2006)
find that less competitive routes are characterized by
lower service quality, in terms of both more frequent
and longer flight delays. Furthermore, Rupp (2009)
examines the effect of competitive, economic, logistical, and weather measures on flight delays. Rupp
and Holmes (2006) examine the effect of the same
measures on flight cancellations, by using domestic
flights in the United States between January 1995
and August 2001. In addition, Rupp and Sayanak
(2008) find that low-cost carriers have slightly shorter
arrival delays (about one minute) than their competitors. Baumgarten et al. (2014) explore the relationship
between hubbing behavior and flight delays over the
20032010 period for eleven U.S. carriers. Although
they consider three measures of delay, i.e., departure
delay against schedule, arrival delay against schedule, and buffer-corrected excess travel time, they only
find a significant and positive influence of hubbing
concentration on the latter. Finally, other economics
researchers (e.g., Mayer and Sinai 2003, Forbes and
Lederman 2010, Ater and Orlov 2015) have investigated the impact of factors such as hub origin, vertical
integration with regional partners, and Internet access
on departure delays.
In the operations management literature, in one
of the earliest studies on the impact of on-time disclosure rule, Shumsky (1993) shows that scheduled
flight times significantly increased as a response to
the regulation in the United States that made airline on-time performance available to the public
after 1988. Ramdas et al. (2013) examine the relationship between several dimensions of service quality (including on-time performance, long delays, and
cancellations) and the airlines stock market performance. Recently, Atkinson et al. (2016) explore
how effectively different carriers implement robust
scheduling practices in the U.S. airline industry. They
show how the marginal return to boarding gates
fluctuates during different hours depending on the
carriers operating model (i.e., hub-spoke versus pointto-point). Phillips and Sertsios (2013) find that airlines quality as measured by on-time performance
and mishandled baggage is affected differently by
financial distress and bankruptcy. Financial distress
reduces a firms incentive to invest in quality; whereas
in bankruptcy, product quality increases relative to
the prebankruptcy financial distress period, consistent with airlines investing in customer retention
and reputation through product quality. Lapr and
Tsikriktsis (2006) use airline data to examine organi-
zational learning curves in the airline industry. Using

a structural estimation methodology, Li et al. (2014)
provide evidence that consumers in the air-travel
industry behave strategically. They also show that
the existence of strategic customers does not always
negatively impact revenues and nondecreasing pricing strategy benefits business markets rather than
leisure markets. Deshpande and Arkan (2012) examine the impact of the airline flight schedules on ontime arrival performance, whereas Arkan et al. (2013)
develop stochastic models to analyze the propagation of delays through air-transportation networks.
Our study contributes to this research stream in two
ways. First, we include a new possible factor that
influences departure delays, i.e., charging for checked
bags. Second, we provide a forecasting model for
departure delays that factors in the spillover effect
of earlier delays. More generally, we study how a
marketing strategy decision such as charging or not
charging passengers for the second, and, respectively,
first checked bag, impacts airline service quality as
measured by on-time departures.
Since our focus is on the operational impact of airline baggage fees instituted by most U.S. airlines in
2008, our primary goal is to document the impact of
baggage fees on the airlines operational performance
by seeking to answer the following two questions:
Did the second checked bag fee policy impact airline
operations, measured by departure delays, relative to
the no-checked bag fees policy (RQ1)? Did the first
checked bag fee policy impact airline operations, measured by departure delays, relative to the no-checked
bag fees policy (RQ2)? We then confirm our results
through several robustness tests. While we do not
specifically test for causality, we explore some of the
potential drivers of our results by seeking to answer
the following two research questions: Was the impact
of baggage fees heterogeneous across airlines (RQ3)?3
Was the impact of baggage fees dependent on the
presence or absence of a carrier that does not charge
for (the first two) checked bags (e.g., Southwest Airlines) (RQ4)? To address the last research question
(RQ4), we assess the impact of baggage fees in the
absence of Southwest by considering only origin city
3
There are reasons to expect that the impact of charging baggage

fees will be different across airlines. The U.S. airline industry is
divided into two broad categories: legacy airlines that primarily
operate through a hub-and-spoke network where most passengers
are channeled through one of the airlines major hubs, and low-cost
airlines that typically fly direct flights. Since a hub-and-spoke network often involves additional handling of checked bags (checked
bags must be transferred between connecting flights), the impact
of the baggage fees could be different for legacy airlines versus
low-cost airlines.
4
markets that Southwest did not serve.4 When confronted with the second checked bag fee in such a
market, travelers could only respond by paying the
baggage fee, reducing the number of checked bags, or
bringing on more and heavier carry-on bags into the
cabin. The three alternatives point to different effects
on the departure delay, depending on the distribution of travelers per each category. Since this distribution is unknown, we let the data provide insights
on the impact of checked baggage fees. We next
investigate what the impact of the decision to implement baggage fees by other airlines was on carriers
that did not charge for (the first two) checked bags
(RQ5). We also examine whether the impact of baggage fees on departures from hub airports was different from the impact on departures from non-hub
airports (RQ6). Our final research question is whether
the impact of baggage fees on departure performance
was related to the time of the day (RQ7). As the day
progresses, connections become more problematic as
checked bags must be transferred between aircraft;
hence, the departure time block of a flight in conjunction with the baggage fees policies could influence
departure time performance. This research question
may thus provide some insight on the relative magnitude of the below the cabin effect.
We find that the implementation of checked bag
fees was associated with improved departure delay
performance for the airlines that implemented the
fee. More specifically, the airlines that implemented
checked baggage fees saw an abnormal improvement
in their departure delay performance after the second checked bag fee went into effect. They then saw
an additional abnormal improvement after the first
checked bag fee went into effect. Thus, the below the
cabin effect appears to have dominated the above the
cabin effect. Although the number of checked bags
for each flight is not directly observable in our data
set, there is some evidence that this number may have
decreased after the baggage fees were implemented,
leading to an improvement in departure performance.
This potential causation is supported by the fact that
the improvement is largest during the evening hours
of the day, as well as at hub airports, when and where
4
Similarly, since the Department of Transportation uses the origin city market to consolidate airports serving the same city, we
consider Southwests origin city markets to assess the impact of
baggage fees in the presence of Southwest. When confronted with
the second checked bag fee in such a market, travelers had several
options: switching to Southwest Airlines, thus bringing additional
checked baggage that may have negatively impacted Southwests
departure performance; not switching to other airlines that did not
charge for second checked bag (be it Southwest or other airlines)
and either paying the fee or traveling with less luggage or bringing
on more and heavier carry-on bags into the cabin; or switching to
other (non-Southwest) airlines that did not charge for the second
checked bag.
the number of connecting flights (and thus transfers

of checked bags) is at its highest. The competing airlines that did not charge for baggage fees (that flew
on the same origin-destination routes as the airlines
that did charge for baggage fees) also saw abnormal improvements in their departure performance,
although their improvement was not as much as it
was for the airlines that did charge for checked bags.
One possible explanation for this is that the reduced
number of checked bags (due to the baggage fees)
requiring back-end operations in the airport, such as
security screening and handling, benefited all the airlines flying through that airport. While the baggage
fees effect on departure delays was heterogeneous
across airlines, it does appear that the airlines that
struggled the most with the handling of checked bags
(as indicated by their relative lost baggage rankings)
benefited the most from charging for baggage fees.
In contrast, the relative on-time arrival performance
of Southwest, the airline that continues to provide free
checked bag service, has dropped significantly from
2007 to 2014 (McCartney 2015).
The remainder of this paper is organized as follows.
In Section 2 we explain the data. The variables and
empirical specifications are discussed in Section 3.
In Section 4 we present and discuss our results and
several robustness checks. Then we state our conclusions in Section 5.
2.
Data
Before discussing our data, we first define the terminology we use to describe the implementation of
the checked baggage fees. We assign a no-baggage
fee periods label to any time period where an airline did not charge for the first two checked bags.
The airlines began charging for checked bags on a
gradual basis. They first implemented a fee for only
the second checked bag, so we label the time periods immediately after this policy change as second
checked bag fee periods. Soon afterward, most U.S.
airlines began charging for both the first and the second checked bags. We label the time periods after this
change as the first checked bag fee periods. In our
econometric models, we use an ordinal variable to
represent the baggage fee policy a given airline was
following at any point in time.
The main data source we used in our study is
the BTS Airline On-Time Performance data, which
includes flight information of all major U.S. airlines
that have at least 1% of total domestic scheduledservice passenger revenues. The data cover nonstop
scheduled-service flights between points within the
United States, and include detailed departure and
arrival statistics by airport and airline, such as scheduled and actual departure and arrival times, departure and arrival delays, origin and destination airports, flight number, flight date, one-hour time blocks
based on the scheduled departure/arrival time (e.g.,

6:00 a.m.6:59 a.m.), canceled or diverted flights, taxiout and taxi-in times, air time, tail number of the aircraft that flew the flight, etc. Thus, our unit of analysis is an individual flight from its origin airport to
the destination airport (i.e., route) operated by each
carrier on a given day at a particular time.
The initial data set included all domestic flights
from all U.S. airports flown by all major domestic
airlines over a two-year period, i.e., from May 1,
2007, to May 1, 2009. After eliminating some bad
records using a methodology similar to Deshpande
and Arkan (2012), our data set included 9,174,752
observations.5 Next, we removed additional observations such as the flights with spillover-adjusted
departure delays exceeding 300 minutes,6 observations where at least one explanatory variable had
missing values, and the flights flown on routes with
a frequency of less than or equal to 50 flights (total
per route). Thus, 8,854,518 observations comprise our
final data set.7
Table 1 shows the dates when the airlines implemented their fees for the second, and, respectively,
first checked bag. Since the event that we study is
when the checked baggage fees went into effect, we
use pre-event data to forecast the normal expected
departure delays for each flight in our data set. Figure 1 illustrates the time line of our study. The
pre-event data include the flights operated by each
carrier starting May 1, 2007, to the day prior to
implementing the second checked bag fee. For example, pre-event data include American Airlines flights
operated between May 1, 2007, and May 11, 2008,
as this carrier implemented the second checked bag
fee on May 12, 2008. Since Southwest Airlines is the
only major carrier that has not implemented a second checked bag fee, we consider Southwests flights
operated between May 1, 2007, and May 4, 2008, as
part of the pre-event data, since May 5, 2008, is the
first date an airline implemented the second checked
bag fee. Thus, our data set comprises 4,687,052 observations during the pre-event period and 4,167,466
observations in the post-event period. Note that the
pre-event period is the same for both our second and
first checked bag fee variables, as shown in Figure 1.
5
We consider the flights operated by American Airlines, Continental Airlines, Delta Air Lines, JetBlue Airways, Northwest Airlines,
United Airlines, US Airways, AirTran Airways, Alaska Airlines,
Frontier Airlines, Hawaiian Airlines, and Southwest Airlines.
Table 1
Dates on Which Baggage Fee Policies Went Into Effect for

the Second and First Checked Bags
Airline
Continental Airlines
Delta Air Lines
Northwest Airlines
United Airlines
US Airways
American Airlines
AirTran Airways
JetBlue Airways
Frontier Airlines
Hawaiian Airlines
(noninterisland travel)
Hawaiian Airlines
(interisland travel)
Alaska Airlines
Southwest Airlines
Implementation date
for the second
checked bag fee (T 1a )
Implementation date
for the first
checked bag fee (T 2a )
May 5, 2008
May 5, 2008
May 5, 2008
May 5, 2008
May 5, 2008
May 12, 2008
May 15, 2008
June 1, 2008
June 10, 2008
June 10, 2008
October 7, 2008
December 5, 2008
August 28, 2008
June 13, 2008
July 9, 2008
June 15, 2008
December 5, 2008
a
November 1, 2008
October 8, 2008
July 15, 2008
July 1, 2008
a
a
a
a
JetBlue Airways implemented a first checked bag fee on June 30, 2015;
Hawaiian Airlines implemented a first checked bag fee for the interisland
travel on September 14, 2009; and Alaska Airlines implemented such a fee
on July 7, 2009. Given that our data set covers the period from May 1, 2007,
to May 1, 2009, the T 2a dates for these airlines become the upper bound of
the period, namely May 1, 2009. In case of Southwest Airlines, which has
not charged its passengers for the first two checked bags, we select May 5,
2008 as the date for T 1a , and again the T 2a date becomes May 1, 2009.
Thus, any effects in departure delay performance are

relative to a no-checked baggage fee reference.
3.
Methods
3.1. Variables and Model

We used data from several sources such as the BTS,8
the FAA,9 and the NCDC10 websites. Since most airports are weather reporting stations, for each origin
and destination airport, we collected data on several
daily weather variables from the NCDC. Additional
variables were computed, as summarized in Table 2
and described next.
3.1.1. Dependent Variable.
Spillover-adjusted departure delay. According to BTS,
departure performance is based on the time an aircraft departs from the gate. The departure delay is
given by the difference between the actual departure time and the departure time as scheduled in the
carriers Computerized Reservations System (CRS).
In cases where the actual departure occurs prior to
See details of spillover-adjusted departure delay calculations in

Subsection 3.1.1. The removal of these observations is based on the
assumption that such large delays are outliers due to reasons other
than baggage fees policies.
7
Of the 320,234 dropped observations, 295,535 have at least one

explanatory variable with missing values; most of these missing
values are from weather related variables.
http://www.transtats.bts.gov/databases.asp?Mode_ID=1&MODE
_Desc=Aviation&Subject_ID2=0 (last accessed January 2016).
http://www.faa.gov/licenses_certificates/aircraft_certification/
aircraft_registry/ (last accessed January 2016).
10
http://www.ncdc.noaa.gov/cdo-web/search (last accessed January 2016).
Figure 1
Time Line for the Event Study
Post-event
Pre-event
T1a
T 2a
The date of
second bag fee
implementation
for airline a
The date of
first bag fee
implementation
for airline a
May 1, 2007
the scheduled departure, the departure delay was

set to zero. It is well known that delays on one
flight can potentially spill-over, or propagate, to the
next flight since any given aircraft for an airline
typically flies multiple flights over the course of a
day. Therefore, our main dependent variable is a
spillover-adjusted departure delay (SpAdj-DepartureDelay), which we computed for each flight i in our
data set by subtracting any delay from the previous
flight i 1 in the aircrafts rotation from the departure
Table 2
May 1, 2009
delay of flight i. This eliminates the serial correlation

between observations in our data set induced by consecutive flights using a common aircraft routing.
To calculate the spillover, we follow the approach
described in Arkan et al. (2013) by considering the
sequence of flights operated by a particular tail number as an aircraft rotation. More specifically, an aircrafts rotation begins with the first revenue flight
after a major maintenance, or a layover of more than
five hours at an airport, and ends with the last flight
Description of Variables
Variable
SpAdj-Departure-Delayi
Route i
Carrier i
Month i
Day-of-Weeki
Dep-Time-Blocki
Description
Difference between the actual departure time and the scheduled departure time of flight i, adjusted for the spillover from the
previous flight in an aircraft rotation
Origin-destination airports pair of flight i
Airline that flew flight i
Month of flight i
Day of week of flight i
One-hour time block based on the scheduled departure time (e.g., 6:00 a.m.6:59 a.m.) of flight i
Arr-Time-Blocki
Dep-Congestioni
One-hour time block based on the scheduled arrival time of flight i

Number of flights scheduled to depart between 45 minutes before and 15 minutes after the scheduled departure time of flight i,
normalized by airport departure capacity
Arr-Congestioni
Aircraft-Agei
Number of flights scheduled to arrive between 45 minutes before and 15 minutes after the scheduled arrival time of flight i,
normalized by airport arrival capacity
Age of the aircraft that flew flight i (years)
Avg-Passengersi
Origin-Prcpi
Dest-Prcpi
Origin-Awndi
Dest-Awndi
Origin-Snowi
Expected number of passengers on the aircraft that flew flight i

Precipitation level at the origin airport on the day of flight i (millimeters)
Precipitation level at the destination airport on the day of flight i (millimeters)
Average wind speed at the origin airport on the day of flight i (meters per second)
Average wind speed at the destination airport on the day of flight i (meters per second)
Snowfall level at the origin airport on the day of flight i (millimeters)
Dest-Snowi
Origin-Tmini
Dest-Tmini
Origin-Tmaxi
Dest-Tmaxi
Bag-Feei
Snowfall level at the destination airport on the day of flight i (millimeters)

Minimum temperature at the origin airport on the day of flight i (degrees Celsius)
Minimum temperature at the destination airport on the day of flight i (degrees Celsius)
Maximum temperature at the origin airport on the day of flight i (degrees Celsius)
Maximum temperature at the destination airport on the day of flight i (degrees Celsius)
801 11 29 variable indicating whether (a) no checked bag fee policy; or (b) second checked bag fee policy; or (c) first checked bag
fee policy was implemented on the date of flight i
801 11 29 variable indicating whether (a) there is no competing airline flying a specific origin-destination city market on a specific
date; or (b) there is such an airline that implemented the second checked bag fee; or (c) there is such an airline that
implemented the first checked bag fee
Bag-Fee-Competitioni
Table 3
A Snapshot of Aircraft Rotation: Southwest Airlines Aircraft with Tail Number N208WN
Position
1
2
3
4
5
6
Scheduled block
time (Qi ) (min)
145
150
185
80
75
265
Route
CRS
departure time
Actual
departure time
CRS
arrival time
Actual
arrival time
MHTMDW
MDWHOU
HOULAS
LASRNO
RNOLAS
LASBUF
7:10 a.m.
9:05 a.m.
12:05 p.m.
1:40 p.m.
3:30 p.m.
5:15 p.m.
7:12 a.m.
9:27 a.m.
12:27 p.m.
2:00 p.m.
3:42 p.m.
5:31 p.m.
8:35 a.m.
11:35 a.m.
1:10 p.m.
3:00 p.m.
4:45 p.m.
12:40 a.m.
8:55 a.m.
11:55 a.m.
1:32 p.m.
3:09 p.m.
4:56 p.m.
12:45 a.m.
Actual block
time (DiL ) (min)
Scheduled ground
time (Gi ) (min)
Minimum turnaround time (Ti ) (min)
Buffer time
(Bi ) (min)
Spillover
(Li ) (min)
165
170
207
89
86
270
30
30
30
30
30
25
20
22
18
22
5
10
8
12
8
0
15
10
14
0
3
operated before the aircraft returns for its next maintenance or remains on the ground for several hours.11
Furthermore, we refer to the actual block time of a
flight as DiL , and compute it as the difference between
the actual arrival time of the flight and its scheduled
departure time.
The actual block time consists of several components including taxi-out time, en route time, and taxiin time, each one being subject to different causes of
delay, and thus the total block time delay is the sum
of all individual component delays. Also, for every
flight i in our data set, we computed the ScheduledBlock-Time (Qi ) as the difference between the scheduled arrival time and its scheduled departure time, as
shown in the carriers CRS.
The time duration between the next flights scheduled departure time, on an aircraft rotation, and the
earlier flights scheduled arrival time is referred to as
the scheduled ground time (Gi ). To compute Gi , from the
Airline On-time Performance data set, we first sorted
the data by airline, tail number and scheduled departure time so that all aircraft rotations are grouped
together. Then, for each flight i, we computed Gi by
subtracting the scheduled arrival time of flight i 1
from the scheduled departure time of flight i. A snapshot of one such aircraft rotation flown by Southwest
Airlines aircraft with tail number N208WN is shown
in Table 3.
We computed the minimum time to turn an aircraft (Ti ) by analyzing ground times at different airports for different types of aircraft for each airline. To
control for the impact of implementation of baggage
fees on these turnaround times, we first divided the
11
As crew schedule information is not publicly available, we

assume that airline crews remain with the aircraft.
data into three time periods (see Figure 1): (1) preevent (between May 1, 2007, and T 1a ), (2) postevent-1 (between T 1a and T 2a ), and (3) post-event-2
(between T 2a and May 1, 2009). Second, we grouped
the actual ground times of all flights flown during
each time period by airline, aircraft model, and departure airport. We then found the fifth percentile value
(in minutes) across all actual ground times for each
airline, time period, aircraft model, and departure
airport combination. Additionally, we calculated the
fifth percentile value of actual ground times for each
airline-aircraft model-time period (Tiaat ) and airlinedeparture airport-time period (Tiadt ) combinations. To
account for some rare situations in which the original turnaround time variable was obtained from very
few flights (i.e., less than 20 observations) or was very
high (i.e., more than 90 minutes), we used either Tiaat
or Tiadt . Further, the buffer time available on ground
for flight i, Bi , is calculated by subtracting Ti from Gi
for all flights except the first flight on the rotation. The
Bi value of the first flight of any rotation is assumed
to be zero. Thus, the spillover, Li , from flight i 1 to
flight i is given by
L
Li = 6Di1
4Qi1 + Bi 57+ 0
Therefore, we computed the spillover-adjusted

departure delay of a given flight by subtracting the
spillover from the previous flight in the aircrafts rotation, from the departure delay:
SpAdj-Departure-Delayi
= 4Actual Departure Timei CRS Departure Timei5+ Li 0
3.1.2. Explanatory Variables. Typical factors that
influence departure delays are seasonal (e.g., passenger load factor, weather, etc.), daily propagation
related (e.g., late arriving crew, late arriving aircraft,
Table 4
2007
7,455,458
Total Number of Domestic Flight Operations in the United

States
2008
2009
7,009,726
6,450,285
connecting passengers from late incoming flights,

air traffic congestion), and random (e.g., mechanical problems, baggage problems, security delays) (Tu
et al. 2008). Since June 2003, the airlines that report
on-time data to the BTS also report the causes of
delays12 for their flights. Figure 2 shows, for example,
the flight delays by cause in the year 2008, across all
U.S. airports. Weather shows up as the main source
of delays, followed by air carrier delay (e.g., maintenance or crew problems, aircraft cleaning, baggage
loading, fueling, etc.), aircraft arriving late, National
Aviation System (e.g., airport operations, heavy traffic volume, air traffic control, etc.), and lastly, security delays. The economic downturn that happened in
the United States during part of our period of study
can have two potential impacts on our analysis: a
drop in load factor (percentage of seats occupied
on a flight), and a cut in the flight schedules offered
by the airlines (fewer flights flown); both of which
can decrease congestion at an airport. Our analysis
indicates that the economic downturn resulted in an
approximately 13% cut in flight schedules (reducing
the average departure congestion by 6%). Table 413
shows the total number of flight operations scheduled
in the United States for each year between 2007 and
2009. Note that these numbers are obtained from all
scheduled domestic flights in the United States. The
number of observations in our data set is smaller than
these numbers since we only used a sample of airlines from all airlines that are required to report their
statistics to the BTS.
We also calculated the average load factors (aggregated over all airlines) by month using our data set.
As can be seen in Figure 3, load factors are highly
seasonal. Comparing these monthly averages between
2007 and 2009 shows that load factors dropped by
around one or two percent as the impact of the economic downturn tightened its hold on the industry.
The change of monthly load factors varied much less
than the drop in the number of operations. In addition, we calculated the average departure congestion
12
The causes of delays are reported in the following broad categories: air carrier, extreme weather, National Aviation System
(NAS), late-arriving aircraft, and security. To obtain total weatherrelated delays, we combined the extreme weather delays and the
NAS weather category, with the weather-related delays included
in the late-arriving aircraft category (calculated as per the BTS
methodology).
13
Source: BTS, http://www.transtats.bts.gov.
(aggregated over all airlines) by each month of our

data (see below the description of the departure congestion variable). As also illustrated in Figure 3, the
normalized departure congestion levels drop around
five or six percentage points throughout the period
used in our study. Even though the decrease in load
factors and departure congestion levels is quite small,
it is important to control for both load factor and congestion in our model. We do so by using both average
number of passengers and departure congestion as
predictors of departure delays in our forecast models.
Thus, a drop in congestion or load-factors after baggage fees went into effect would result in a prediction
of improved departure delay performance. Any additional improvement in departure delay performance
(abnormal delays) over the predicted performance
can thus be attributed to baggage fees.
One shortcoming of the BTS Airline On-Time Performance data is that the source of delay cannot be
distinguished between the origin and destination airports. By using individual flight level congestion and
weather related control variables at the origin and
destination airports, and spillover-adjusted departure
delay as our dependent variable, we control for the
main drivers of flight delays. Hence, our conclusions related to baggage fees and departure delays
are robust, given that we used the following control
variables:
Route. The Route variable captures all the fixed
effects of an origin-destination pair for each flight.
Carrier. The Carrier variable denotes the airline that
flew the flight, and controls for airline specific effects.
Congestion at the origin/destination airport. Unlike
prior literature that used an average congestion
measure, we computed two congestion measures for
each individual flight, i.e.: (1) departure congestion,
Dep-Congestion, as the number of flights scheduled
to depart in an adjacent time block (i.e., between
45 minutes before and 15 minutes after the scheduled departure time of that flight) from the origin
airport, that can potentially delay the flight; and
(2) arrival congestion, Arr-Congestion, as the number
of flights scheduled to arrive in an adjacent time
block (between 45 minutes before and 15 minutes
after the scheduled arrival of that flight) at the destination airport. Note that these congestion variables
are normalized by hourly airport capacities, which we
extracted from the FAA Operations and Performance
Data.
Month. The Month variable denotes the month of
the flight that controls for seasonal fluctuations.
Day of the week. The Day-of-Week variable indicates
the day of the week of the flight, controlling thus for
lighter versus heavier travel days.
Departure/arrival time block. Because delays are generally expected to worsen over the course of a day, we
Figure 2
Flight Delays by Cause in JanuaryDecember, 2008 (Based on the BTS Data on All Carriers and Airports)
Security delay
0.1%
Aircraft arriving
late delay
20.0%
Weather delay
45.5%
Air carrier delay

27.7%
Figure 3
(Color online) Average Load Factor and Average Departure Congestion by Month
Average load factor by month

0.85
0.80
0.75
0.70
2008-Sep
2008-Oct
2008-Nov
2008-Dec
2009-Jan
2009-Feb
2009-Mar
2009-Apr
2008-Sep
2008-Oct
2008-Nov
2008-Dec
2009-Jan
2009-Feb
2009-Mar
2009-Apr
2008-Aug
2008-Jul
2008-Jun
2008-May
2008-Apr
2008-Mar
2008-Feb
2008-Jan
2007-Dec
2007-Nov
2007-Oct
2007-Sep
2007-Aug
2007-Jul
2007-June
0.60
2007-May
0.65
Average departure congestion by month

0.47
0.45
0.43
0.41
0.39
0.37
2008-Aug
2008-Jul
2008-Jun
2008-May
2008-Apr
2008-Mar
2008-Feb
2008-Jan
2007-Dec
2007-Nov
2007-Oct
2007-Sep
2007-Aug
2007-Jul
2007-June
0.35
2007-May
National Aviation
System delay
6.7%
10
use Dep-Time-Block/Arr-Time-Block variables to control
for the one-hour time block of the scheduled departure/arrival time (e.g., 6:00 a.m.6:59 a.m.) of the
flight.
Age of aircraft. As the tail number is a unique identifier for each aircraft, we used it to collect the aircrafts year of manufacture from the Aircraft Registry
Database hosted by FAA. Hence, we were able to
compute the age of the aircraft.
Average number of passengers. The unique tail number also offers information on the number of seats of
each aircraft, as per the Aircraft Registry Database.
We multiplied this seating capacity by the load factor we collected from BTS T 100 Domestic Segment
(U.S. Carriers) data. As the load factor is the monthly
proportion of total seats that were actually filled for
an airline on a specific route, we were able to compute the average number of passengers on each flight,
thus controlling for the demand for air travel.
Weather related variables. Adverse weather conditions increase the likelihood of departure delays.
Thus, the precipitation level (millimeters) on the day
of the flight at the origin and destination airports is
captured by Origin-Prcp and Dest-Prcp variables; the
average wind speed (meters per second) on the day
of the flight at the origin and destination airports is
indicated by Origin-Awnd and Dest-Awnd variables;
the snowfall level (millimeters) on the day of flight
at the origin and destination airports is captured by
Origin-Snow and Dest-Snow variables; and the minimum and maximum temperatures (degrees Celsius)
are captured by Origin-Tmin and Dest-Tmin, respectively, Origin-Tmax and Dest-Tmax, variables at the
origin and destination airports on the day of flight.
Finally, the Bag-Fee ordinal variable indicates the
status of each flight in our data set with regards to
the checked bag fee policy of the airline that flew the
flight. Thus, Bag-Fee = 1 indicates a flight with the second checked bag fee policy implemented by the specific airline on that specific date, whereas Bag-Fee = 0
indicates the absence of such policy, i.e., no checked
bag fee policy is implemented by the airline. Further,
Bag-Fee = 2 indicates a flight with the first checked
bag fee policy implemented by the airline on that specific date. We used this variable to segment our data
set for our specific analyses. A summary of descriptive statistics of the continuous variables used in our
analysis is presented in Table 5.
3.1.3. Additional Variables.
Competitor airline bag fee. To understand how competition on a route affects departure delays, we
included the baggage fee policy of the competing airline in our measure of competition. Hence, for each
flight in our data set, we identified the competing
airlines serving the same origin and destination city
market on the same date. For instance, if the observed

Table 5
Descriptive Statistics
Variable
SpillAdj-Departure-Delay
(minutes)
Dep-Congestion
(% of departure capacity)
Arr-Congestion
(% of arrival capacity)
Avg-Passengers (passengers)
Aircraft-Age (years)
Orig-Prcp (millimeters)
Orig-Dest (millimeters)
Orig-Awnd
(meters per second)
Dest-Awnd
(meters per second)
Orig-Snow (millimeters)
Dest-Snow (millimeters)
Orig-Tmin (degrees Celsius)
Dest-Tmin (degrees Celsius)
Orig-Tmax (degrees Celsius)
Dest-Tmax (degrees Celsius)
Pre-event data set
Post-event data set
Mean
Mean
Std. dev.
Std. dev.
7048
21090
6047
20094
0044
0025
0040
0024
0039
0023
0035
0022
111033
12010
22057
22064
36039
30009
7084
74029
74050
17026
110046
12026
22045
22047
37019
31001
7066
78090
78097
17077
36039
17027
37019
17077
1004
1005
11020
11020
21071
21071
9066
9074
9081
9081
10045
10045
1012
1013
10080
10079
21050
21050
10014
10021
10004
10004
10058
10058
flight is a Southwest Airlines flight from Chicago

Midway airport to New York LaGuardia airport on
March 14, 2008, one competing airline is United Airlines, which offers service from Chicago OHare airport to Newark Liberty airport on March 14, 2008.
There can be several competitor airline flights for
an observed flight. For each flight in our data, we
assigned an ordinal variable (i.e., 0, 1, 2) to measure
competition based on origin-destination city market
and flight date. The flight date determines the value
of this ordinal variable. Bag-Fee-Competition is set to
0 if there is no competing airline flying that origindestination city market or if all competing airlines
on that market do not have a baggage fee policy in
effect on that date. Bag-Fee-Competition is set to 1 if
there exists a competing carrier on that market with
a second checked baggage fee in effect on that date,
and no other competing carrier on that market has a
first baggage fee in effect on that date. Finally, BagFee-Competition is set to 2 if there exists a competing
carrier on that market with a first checked bag fee in
effect on that date.
3.2. Event Study Methodology
In this subsection we outline the event study
methodology to study the impact of the baggage
fee implementation event on operational performance (departure delays). This methodology is
widely deployed in finance and economics literatures (MacKinlay 1997, Kothari and Warner 2006), i.e.,
researchers use it to predict the abnormal stock
market return around an event (stock split, earnings announcement, etc.) and then test for the size of
11
this effect. This is achieved by forecasting the normal stock market return, using pre-event data, for
the post-event time period. The difference between
the actual observed post-event stock market return
and the normal stock market return is characterized as abnormal stock market return and then
its size is tested for significance. This methodology
has also been recently applied in empirical operations literature using airline data (Ramdas et al. 2013).
In our context, the event that we study is when
the checked baggage fees went into effect. We use
the pre-event data to forecast the normal expected
departure delays for each flight in our data set. Note
that we run the regression separately for each route
time series in our data set (with a separate fixed effect
for the airline for each route). The unit of observation
for the time series is each individual flight. The difference between the actual observed departure delay
after the event (post-baggage fee introduction) and
the predicted normal departure delay then can be
assessed as abnormal departure delay for a flight.
For each airline a A, let T 1a represent the date
airline a implemented the second checked bag fee, i.e.,
started charging for one bag, and T 2a represent the
date airline a implemented the first checked bag fee,
i.e., started charging for two bags. We set T 1a equal
to May 5, 2008, and T 2a equal to May 1, 2009, for
Southwest flights along with the flights of all other
airlines that did not charge a fee for checking two
bags during the time of our study.
Let PredictedDepDelayit be the predicted or expected
spillover-adjusted departure delay for each flight i
flown on date t greater than or equal to T 1a , and
ObservedDepDelayit be the actual observed spill-over
adjusted departure delays for these flights. Then, the
abnormal delay for flight i flown on date t can be
measured as
AbnormalDepDelayit
= ObservedDepDelayit PredictedDepDelayit 0
For our main method, we used a sophisticated

regression model using flight attributes. This is equivalent to using factor models in finance (e.g., Fama
French three-factor model). More specifically, we fit
a regression of the following type, using data for
t < T 1a :
SpAdj-Departure-Delayit = X + it 0
(2)
Here, X is the vector of factors that affect flight

departure delays (e.g., airline, route, weather, etc.)
listed in (3) below. An ordinary least squares regression would not be appropriate in this case since the
dependent variable is censored at zero. More appropriate regression models would be the Tobit regression, Poisson regression, or the negative binomial
regression. We tried all of these models and selected
the negative-binomial model as it provided the best
fit, and was computationally efficient to estimate on
our large data set.
The normal expected departure delays for each
flight i were estimated by route j (a route consists
of an origin-destination pair) based on a negative
binomial model. To find the best subset of model
effects, we employed a stepwise forward regression
model with 5% significance level criterion. The complete specification of the fitted model using all flights
flown during t < T 1a in our data set is given below:
SpAdj-Departure-Delayi1 j1 t
= 01 j +11 j Carrieri1 j1 t +21 j Monthi1 j1 t +31 j
Day-of-Weeki1 j1 t +41 j Dep-Time-Blocki1 j1 t +51 j
Arr-Time-Blocki1 j1 t +61 j Dep-Congestioni1 j1 t
+71 j Arr-Congestioni1 j1 t +81 j Avg-Passengersi
+91 j Aircraft-Agei1 j1 t +101 j Origin-Prcpi1 j1 t
+111 j Dest-Prcpi1 j1 t +121 j Origin-Prcp-Sqi1 j1 t
+131 j Dest-Prcp-Sqi1 j1 t +141 j Origin-Awndi1 j1 t
(1)
+151 j Dest-Awndi1 j1 t +161 j Origin-Awnd-Sqi1 j1 t
This abnormal delay measure can then be used to

assess the impact of baggage fees.
Given that the event studied in this paper is
when the checked baggage fees went into effect,
the pre-event data were used to forecast the normal
expected departure delays for each flight in our data
set, PredictedDepDelayi . We use a regression model to
predict departure delays as described in this subsection. In addition to this methodology, we checked
the robustness of our main findings by analyzing
the data with different methods such as propensity score matching, panel data approach, differencein-differences estimation, falsification test, and time
trend analysis. The details and results of these robustness analyses are available in Section 4.1.
+171 j Dest-Awnd-Sqi1 j1 t +181 j Origin-Tmini1 j1 t

+191 j Dest-Tmini1 j1 t +201 j Origin-Tmin-Sqi1 j1 t
+211 j Dest-Tmin-Sqi1 j1 t +221 j Origin-Tmaxi1 j1 t
+231 j Dest-Tmaxi1 j1 t +241 j Origin-Tmax-Sqi1 j1 t
+251 j Dest-Tmax-Sqi1 j1 t +i1 j1 t 0
(3)
Using the coefficients estimated from the above

the predicted departure delays for all flights
model, ,
flown in the period t T 1a were obtained as follows:
PredictedDepDelayit = X
i3 t T 1a 0
(4)
Furthermore, to test the impact of the baggage fees,

an abnormal departure delay for each post-event
12
flight i (i.e., i T 1a ) was computed as the difference between the actual observed departure delay
after the event and the normal expected departure
delay, where the observed departure delay represents
the previously calculated spillover-adjusted departure
delay:
ObservedDepDelayi1 t = SpAdj-Departure-Delayi1 t 1 (5)
AbnormalDepDelayi1 t
= ObservedDepDelayi1 t PredictedDepDelayi1 t 0
4.
(6)
Results, Discussion, and

Robustness Tests
Our first research question tests for the size and significance of the second checked bag fee policy relative to a no-checked baggage fees policy. We check for
this effect by examining the average abnormal departure delay across all flights in our data set which
operated under a second checked bag fee policy,
i.e., Bag-Fee = 1. Let 1 represent the average abnormal delay across all flights operating with a second
checked bag fee policy as follows:
X
i3Bag-Feei1 t =1
N1
1 =
(7)
where N1 represents the number of flights operating

with the second checked bag fee policy in effect in our
data set. The distributional properties of the abnormal
delays can be used to draw inferences over any period
in the event window. Thus, our first research question
(RQ1) tests for 1 < 0 as compared to 1 > 0.
Our second research question (RQ2) tests for the
size and significance of the first checked bag fee policy relative to a no-baggage fees policy. We check
for this effect by examining the average abnormal
departure delay across all flights in our data set that
operated under a first checked bag fee policy, i.e., BagFee = 2. Let 2 represent the average abnormal delay
across all flights operating with a first checked bag
fee policy as follows:
X
i3Bag-Feei1 t =2
N2
2 =
Table 6
(8)
where N2 represents the number of flights operating

with the first checked bag fee policy in effect. Thus,
we test for 2 < 0 as compared to 2 > 0. Under
the hypothesis that baggage fees have no impact on
departure delays, the central limit theorem can be
used to argue that the terms 1 and 2 are distributed approximately Students t with a mean zero
and a variance given by the sample variance over
the estimation period (Hendricks and Singhal 1996,
MacKinlay 1997). We also conduct nonparametric
tests for our research questions such as the sign test
and the signed-rank test as in MacKinlay (1997).
The first column of Table 6 provides the mean
of the abnormal departure delays for the second
checked baggage fee policy as well as the first
checked baggage fee policy together with their relative percentages in parentheses. Table 6 shows that
implementing the second checked bag fee policy significantly improved the departure performance (i.e.,
reduced spillover-adjusted departure delays) of those
airlines after they implemented the fee by an average
of 1.3 minutes. This is equivalent to a 19.46% improvement relative to the average spillover-adjusted departure delays of the corresponding flights. This result is
statistically significant at 1% level, and the nonparametric tests were statistically significant as well. In
addition, Table 6 shows that the median improvement
in departure performance is 3.34 minutes. This suggests that a large number of flights (more than 50%)
saw a significant improvement in departure performance (greater than 3.34 minutes) after the second
baggage fee policy went into effect. We also checked
for the percentage of flights with a zero departure
delay by first predicting the percentage of flights with
a zero departure delay and then subtracting this out
of the actual observed percentage of flights with a
zero departure delay after the second checked baggage fee policy went into effect. This abnormal percentage of zero departure delay flights is reported
in the last column of Table 6. The table shows that
there was a 5.96% improvement in the percentage of
flights with zero departure delay after the second baggage fee policy went into effect. All of these results
support the finding that departure delay performance
Abnormal Departure Delay (Minutes)Aggregate Level

Mean,
Confidence
interval (95%)
Median
Abnormal percentage of
zero departure delay flights (%)
Bag-Fee = 1
1030
419046%5
610353 10267
3034
5096
Bag-Fee = 2
2004
428085%5
620073 20007
4015
10018
Statistically significant at 1% level based on the Students t-test (for the mean) and Wilcoxon signed-rank test (for the median).
Numbers in parentheses are abnormal departure delay percentages relative to the spillover-adjusted departure delays of corresponding flights. Negative sign shows improvement.
13
improved when charging for the second checked bag

relative to not charging for the second checked bag.
Table 6 also shows the improvement in departure
delay performance after the first baggage fee policy was implemented relative to not charging baggage fees. This table shows that implementing the
first checked bag fee policy significantly improved
the departure performance of those airlines after they
implemented the fee by an average of 2.04 minutes
with 28.85% improvement relative to the average
spillover-adjusted departure delays of the corresponding flights. This result is statistically significant
at the 1% level, and the nonparametric tests were
statistically significant as well. In addition, the table
shows that the median improvement in departure
performance is 4.15 minutes. This suggests that a
large number of flights (more than 50%) saw a significant improvement in departure performance (greater
than 4.15 minutes) after the first baggage fee policy
went into effect. Table 6 also shows that there was a
10.18% improvement in the percentage of flights with
zero departure delay after the first baggage fee policy
went into effect. All of these results support the finding that departure delay performance improved when
charging for first checked bag relative to not charging
for a second checked bag.
Airlines differ from one another in terms of their
network structure (e.g., hub-and-spoke versus pointto-point) along with how they planned and executed
the roll-out of their baggage fees. We next examine whether the operational impact of baggage fees
was heterogeneous across airlines (RQ3). As shown in
Table 7, the impact of the second and first checked bag
fees appear to be heterogeneous across the airlines.
In particular, among the legacy carriers, US Airways
experienced the largest improvement in departure
delay performance, with an average improvement
of 3.8 minutes when the second checked bag fee
was implemented. This is equivalent to a performance improvement of about 65.5% relative to average spillover-adjusted departure delays of the flights
for which US Airways charged a fee for the second
checked bag. In contrast, American Airlines saw no
improvement in departure delay performance after
implementing the second checked bag fee. Many airlines saw a larger improvement in departure delay
performance after implementing the first bag fee, with
United Airlines experiencing the largest benefit in
terms of the average absolute magnitude improvement of 3.2 minutes and with Northwest Airlines
experiencing the largest benefit in terms of the relative percentage improvement of 40.16%.
One potential explanation for the differences in
departure delay performance across different airlines
is that airlines differ in the efficiencies of their baggage handling processes. Because the actual baggage
handling performance metrics are proprietary information for each airline, we can use the publicly
reported mishandled baggage rate as a proxy for an
individual airlines relative baggage handling process
proficiency. Thus, we use the number of mishandled
baggage per 1,000 passengers rates for each airline14
for the months between May 2007 and May 2009, and
calculate the drop in this rate between the before
and after periods for each airline, as reported in
Table 7.
This table shows that US Airways, which experienced the largest improvement in departure delay
performance after implementing the second checked
bag fee, also saw the largest improvement in their
mishandled baggage rates for the same period (i.e.,
the average number of complaints per 1,000 passengers in the pre-event time period dropped by 3.29
in the post-event time period). To further support
our claim, we calculate the correlation between the
drop in average number of complaints and the mean
of abnormal departure delays of all airlines when
they charge for the second checked bag and the first
checked bag, respectively. The correlation with the
second checked bag fee is 0.60, and the correlation
with the first checked bag fee is 0.26. We would
expect these correlations to be negative because a
higher ratio of mishandled bags should mean a larger
(more negative) improvement in departure delays.
Thus, these correlations also support the explanation
for the heterogeneous nature of the departure delay
improvements. There is also some evidence that the
implementation of checked bag fees (possibly leading
to a reduction in the number of checked bags) has had
an industry-wide impact on the rate of mishandled
bags. As reported in McCartney (2014), the industry
average for mishandled bags in 2014 is well less than
half the rate recorded in 2007.
We next examine whether the presence or absence
of a competing airline, which does not charge baggage fees, has an impact on the departure delay performance (RQ4). To examine this question, for each
airline which charged baggage fees, we divided their
flights into two segments: one in which Southwest
offered service at the origin city market, and another
where Southwest did not offer service at the origin city market. Table 8 documents the abnormal
departure delay for airlines that charged baggage fees
for Southwest and non-Southwest markets. The table
shows that the median abnormal departure delay is
14
These data are available in the Air Travel Consumer Report

which is a monthly product of the Department of Transportations Office of Aviation Enforcement and Proceedings. The
monthly reports can be downloaded from http://www.dot.gov/
airconsumer/air-travel-consumer-report-archive (last accessed January 2016).
14
Table 7
Abnormal Departure Delay (Minutes) and Drop in Mishandled Baggage Complaints by Airline
Bag-Fee = 1
Airline
American Airlines
Alaska Airlines
JetBlue Airways
Continental Airlines
Delta Air Lines
Frontier Airlines
AirTran Airways
Hawaiian Airlines
Northwest Airlines
United Airlines
US Airways
Bag-Fee = 2
Confidence
interval (95%)
Median
Drop in avg. no.

of complaints per
1,000 passengers
600203 00237
4039
1.13
610993 10757
4055
1.98
610063 00797
2080
1.30
0083
410008%5
0077
412009%5
1091
451014%5
1031
423094%5
1065
4105024%5
1078
428073%5
600983 00697
3036
1.26
600853 00687
2091
2.46
620083 10747
3006
2.36
610423 10207
2051
1.38
610803 10497
0058
0.02
610913 10667
4056
1.44
0065
46063%5
3081
465055%5
600883 00427
4097
0.47
630973 30667
5024
3.29
Mean
0001
40014%5
1087
429096%5
0093
411031%5
Mean
2009
425036%5
0030
43034%5
0094
414056%5
0095
416066%5
1039
424048%5
2018
427088%5
2003
440016%5
3020
437002%5
2069
454001%5
Confidence
interval (95%)
Median
Drop in avg. no.

of complaints per
1,000 passengers
620163 20027
4075
2.50
6.00
4.34
600163 00437
2085
2.05
610053 00847
2098
1.40
610163 00747
2083
2.85
610543 10247
2047
2.10
610463 20907
2071
1.07
620123 10947
4010
2.05
630293 30117
6012
0.55
620763 20627
3087
3.93
Numbers in parentheses are abnormal departure delay percentages relative to the spillover-adjusted departure delays of corresponding flights. Negative
sign shows improvement.
smaller in Southwest markets as compared to nonSouthwest markets when both the second bag fee
and the first bag fee were introduced. This suggests
that, given the option to fly with a carrier with no
baggage fees, some passengers likely switched their
carrier. These results suggest a reduced baggage volume for the carrier that charged baggage fees and,
hence, a larger improvement in departure delay performance for the airline when it competed directly
against Southwest.
To address RQ5, we examine the impact of a
competing airline that charges baggage fees on
the departure time performance of an airline that
does not charge baggage fees. Table 9 provides
the impact on Southwest Airlines (which does not
charge for the first two checked bags) departure
performance of the decision to implement checked
baggage fees by other airlines. Southwest experienced an improvement in departure performance,
albeit smaller, after other airlines competing on the
same routes implemented baggage fees. The average improvement was 1.37 minutes when the competing airlines implemented the second checked bag
fee, and 1.26 minutes when the competing airlines
implemented the first checked bag fee. The aver-
age relative percentage improvement when the competing airlines implemented the second checked bag
fee and implemented the first checked bag fee are
26.64% and 22.40%, respectively. The fact that Southwest also saw an improvement in departure delay
performance suggests that the decision to implement
baggage fees by some airlines also benefited airlines
that did not charge baggage fees. This can potentially have two explanations. First, many of the backend operations at an airport, such as security checks
and baggage handling, are performed using shared
resources across airlines. Thus, a drop in the total baggage volume (due to baggage fees) benefits not only
the airlines that charge baggage fees but also those
that do not charge baggage fees. Second, as baggage
fees became pervasive across the industry, this may
have led to a cultural shift across passengers in the
United States to travel with less baggage, thus benefiting airlines that do not charge baggage fees.
Our next set of research questions are intended
to help answer the question of whether the below
the cabin effect (customer checking fewer bags) dominated the above cabin effect (customers carrying
on more overstuffed bags). If the improvement in
departure delay performance were primarily due to
15
Table 8
Abnormal Departure Delay (Minutes) in the Presence or Absence of Southwest Airlines

Southwests origin city markets
Mean
Bag-Fee = 1
Bag-Fee = 2
1026
418024%5
2007
428068%5
Non-Southwest airlines origin city markets
Confidence
interval (95%)
Median
Mean
610313 10217
3051
620113 20037
4022
1041
423039%5
1085
429079%5
Confidence
interval (95%)
Median
610483 10337
2089
610933 10777
3077
a reduction in the number of checked bags, we

would expect hub airports to show a larger improvement than non-hub airports since the need to transfer checked baggage between planes at hub airports
is an often cited reason for departure delays. Thus,
to answer RQ6, we examine the impact of baggage
fees based on the airlines network structure. In particular, we examine whether the operational impact
of baggage fees differs when the origin airport is
a hub/focus city, or not, for the operating airline.
The impact of the origin airports as hubs for nonSouthwest airlines, and focus-cities for Southwest Airlines, is captured in Table 10. Non-Southwest airlines
experienced a greater improvement (absolute magnitude) in departure delay performance at the hub
origin airports versus non-hub origin airports but a
smaller relative percentage magnitude improvement.
For Southwest Airlines, the average absolute magnitude improvement in departure delay performance
was smaller at focus cities compared to non-focus
cities but the percentage magnitude improvement
was larger. Airports designated as a hub/focus city
for an airline operate with the additional complexity
of transferring bags between connecting flights, which
may lead to departure delays. A drop in checked baggage volume can, thus, have a higher impact at hub
cities. This explanation has mixed support in our findTable 9
Abnormal Departure Delay (Minutes) for Southwest Airlines

in the Presence of the Checked Baggage Fee Policies of the
Competitors
Mean
Bag-Fee = 0 and
Bag-Fee-Competition = 1
Bag-Fee = 0 and
Bag-Fee-Competition = 2
1037
426064%5
1026
422040%5
Confidence
interval (95%)
Median
610433 10327
2042
610323 10207
2045
Statistically significant at 1% level based on the Students t-test (for the

mean) and Wilcoxon signed-rank test (for the median).
ings for the hub airports of airlines that implemented

baggage fees, as the absolute improvements offer support but the relative percentage improvements do not.
A second test on the below versus above the cabin
effect is to examine whether the departure delay
performance is larger during the times of the day
when the number of checked bags requiring transfers between aircraft is the largest (RQ7). The results
in Table 11 capture the time of the day effect on
departure delay performance. As seen in this table,
the improvement in departure delay performance is
the highest during the evening peak hours of 6 p.m.
10 p.m. and the smallest during the morning hours
of 6 a.m.noon. This suggests that the improvement
in departure delay performance is likely to be during periods of high congestion, even after controlling
for congestion in our regression models. This again
could be because of reduced baggage volume to be
handled during the peak periods. These results also
show that the improvement in departure delay performance can be significant, with a median improvement
in departure delays of as much as 6 minutes during
peak periods.
4.1. Robustness Checks
We test the robustness of the direction of our results
obtained from our main model described in Section 3.2 by using five different methods: (1) propensity score matching, (2) panel data approach, (3)
difference-in-differences estimation, (4) falsification
test, and (5) time trend analysis. We describe these
methods below.
4.1.1. Propensity Score Matching. In experimental studies, individuals or subjects are randomly
assigned to treatment or control groups to control
for biases due to unobserved characteristics of these
subjects. In observational studies, like ours, matching methods are often used to control for biases
when randomization is not possible. One of the
most commonly used matching methods is propensity
score matching. In this method, treatment and control
16
Table 10
Abnormal Departure Delay (Minutes) at Hubs/Focus Cities vs. Non-Hubs/Non-Focus Cities

Confidence
interval (95%)
Mean
Median
Mean
Confidence
interval (95%)
Median
Hubs vs. non-hubs

Non-Southwest Airlines
Bag-Fee = 1
Non-Southwest Airlines
Bag-Fee = 2
1044
419029%5
610503 10387
3080
1017
419077%5
610233 10127
3000
2037
427000%5
620433 20327
5042
1074
431045%5
610793 10697
3035
610543 10487
2003
Focus cities vs. non-focus cities

Southwest Airlines
Post-Event
1025
419011%5
610293 10217
2079
1051
430048%5
Numbers in parentheses are abnormal departure delay percentages relative to the spillover-adjusted departure delays of corresponding flights. Negative
sign shows improvement.
group observations are matched based on the estimated probability of being treated (i.e., their propensity score).
In our setting, to take advantage of the staggered implementation of the first checked bag fee,
we group the flights in the post-event period into
two categories: control and treatment flights. Control
flights are post-event flights for which airlines implemented the second checked bag fee policy (T 2a >
t > T 1a : post-event-1); and treatment flights are postevent flights for which airlines implemented the first
checked bag fee policy (t > T 2a : post-event-2). Hence,
Table 11
due to the staggered implementation dates of baggage

fees, we are no longer reliant on Southwest being the
only airline in the control group. For example, Delta
flights before December 5, 2008 (its implementation
date for first checked bag fee) can also act as control flights for United Airlines, which implemented its
first checked bag fee much earlier on June 13, 2008.
For the first step of the matching analysis, we used
a logit model to estimate the probability that a flight
would be assigned as a treatment flight. To estimate this probability (propensity score), we used a
binary variable that equaled 1 if the observed flight
Abnormal Departure Delay (Minutes) by Departure Time Block

Bag-Fee = 1
Department time block
Mean
00:00 a.m.05:59 a.m.

06:00 a.m.06:59 a.m.
07:00 a.m.07:59 a.m.
08:00 a.m.08:59 a.m.
09:00 a.m.09:59 a.m.
10:00 a.m.10:59 a.m.
11:00 a.m.11:59 a.m.
12:00 p.m.12:59 p.m.
1:00 p.m.1:59 p.m.
2:00 p.m.2:59 p.m.
3:00 p.m.3:59 p.m.
4:00 p.m.4:59 p.m.
5:00 p.m.5:59 p.m.
6:00 p.m.6:59 p.m.
7:00 p.m.7:59 p.m.
8:00 p.m.8:59 p.m.
9:00 p.m.9:59 p.m.
10:00 p.m.10:59 p.m.
11:00 p.m.11:59 p.m.
0078
1004
1044
1026
1061
1004
1008
1009
0095
1003
1029
1021
1020
1009
1082
2001
2026
1085
1083
Confidence
interval (95%)
610103 00457
610213 00887
610593 10287
610413 10107
610783 10447
610213 00877
610243 00917
610263 00927
610113 00787
610203 00867
610473 10127
610383 10037
610383 10037
610273 00927
620003 10647
620223 10807
620463 20057
620143 10557
620233 10447
Bag-Fee = 2
Median
1081
2008
2072
3002
3011
2088
2093
3020
3046
3073
4002
3086
4029
4036
4067
4080
4097
4042
4019
Mean
1036
1009
1032
1066
1049
1028
1046
1016
2005
2010
2026
2075
2091
3022
2078
3052
3055
2032
1062
Confidence
interval (95%)
Median
610733 10007
610223 00967
610453 10197
610783 10537
610633 10357
610433 10147
610603 10337
610303 10017
620183 10917
620243 10967
620403 20117
620893 20607
630053 20777
630363 30087
620933 20647
630713 30327
630753 30357
620553 20097
620143 10107
2039
2043
3006
3079
3090
3077
3081
3082
4044
4056
5000
5017
5034
5058
5067
6053
6014
4095
4095
17
Table 12
Difference (Minutes): Abnormal Delays (Treatment,

Post-Event-2) Abnormal Delays (Control, Post-Event-1)
Mean
Std. dev.
t-value
Pr > t
95% confidence
interval
0.74
33.51
23.82
<000001
600801 00687
1,165,012
was in the treatment flight group and equaled 0 otherwise. We used the same explanatory variables as
in (3) except the carrier variable to avoid complete
identification of the dependent variable of the logit
model. Both the treatment and control flights were
initially randomly sorted. Then, a control flight was
selected (i.e., matched) for each treatment flight based
on the absolute value of the difference between the
propensity scores. The selection of control flights was
made such that the absolute difference of the propensity scores was minimized. This type of matching
is referred to as nearest neighbor matching, and we
selected only one control flight for each treatment
flight (i.e., one-to-one matching). Note that we did
not allow replacement of control flights, which means
that each control flight was matched with only one
treatment flight. After the matching of all treatment
flights was completed, we analyzed the differences
between the abnormal delays of the treatment and
control flights by conducting a t-test. Table 12 summarizes the results of this t-test.
As can be seen in Table 12, the mean abnormal
delay of the control flights is higher than that of
the treatment flights (i.e., the difference of the means
is negative). This result supports the argument that
implementing the first checked bag fee policy significantly improved the departure performance as compared to implementing only the second checked bag
fee policy. Thus, by taking advantage of the fact that
airlines staggered the implementation dates of their
baggage fees, and by conducting propensity score
matching, we are able to provide an additional robustness check of our main result.
4.1.2. Panel Data Approach. We also tested the
robustness of the results by employing a panel
data interpretation of our data.15 In the panel-based
method, we clustered the data based on city pairs
(i.e., origin-destination pairs) and carrier. We chose the
day of departure as the time dimension of the panel.
Thus, flights sharing the same origin-destination cities
and the airline carrier were placed in the same group
(cross section). Let i represent the group effect (i.e.,
15
Note that we performed this analysis considering only the 57 airports used by Southwest Airlines and at least one competing carrier. These airports constitute a representative sample of all Southwest airports, i.e., 89% of the total number of airports used by
Southwest Airlines in 2008.
Table 13
Impact of Bag-Fee on Spillover-Adjusted Departure Delay

(Minutes) (Panel Data Approach)
Variable
Estimate
(Panel )
Std. error
t-value
p-value
Bag-Fee = 0
Bag-Fee = 1
Bag-Fee = 2
.
0067
1012
.
0.03
0.03
.
19067
37054
.
<000001
<000001
city pair-carrier) and t denote the time effect (i.e., day

of departure) of the panel model. We used a one-way
fixed effect model for our analysis.16 Let cluster Iit
denote the subset of flights that are in the same group
(i.e., which have the same carrier-city pair-flight date
combination). Then, for each cluster Iit , we calculated
the means of a subset of variables that we used in the
main model. Therefore, the model for the panel data
analysis can be written as follows:
SpAdj-Departure-Delayit
+ Panel Bag-Fee + i + it 1
= X
it
(9)
is the vector of explanatory variables:

where X
8Monthit 1 Dep-Congestionit 1 Arr-Congestionit 1
Aircraft-Ageit 1 Avg-Passengersit 1 Origin-Prcpit 1
Dest-Prcpit 1 Origin-Awndit 1 Dest-Awndit 90
The group-specific (i.e., specific to each city paircarrier combination) time-invariant effect is represented by i . There are 3,713 cross-sections (groups)
in our panel data and the time series length is 737.
We tested the fixed effect in our model by an F -Test
(H0 2 1 = 2 = = n = 0). The null hypothesis is
rejected (F -value = 27.35 and p < 000001) and we conclude that there is a significant fixed effect in the
model. We are interested in the effect of Bag-Feeit on
our dependent variable, SpAdj-Departure-Delayit . The
results in Table 13 show that baggage fees reduced the
departure delay of the flights and the impact is more
profound for airlines charging for the first checked
bag (i.e., Bag-Fee = 2). As shown in Table 13, airlines
average departure delay dropped about 0.67 minutes after implementing the second checked bag fee
and about 1.12 minutes after implementing the first
checked bag fee. Thus, this panel data analysis provides additional support to our RQ1 and RQ2.
4.1.3. Difference-In-Differences Estimation. As
an alternative robustness check, we used a differencein-differences estimation method. This estimation
technique identifies a specific intervention or treatment
16
We extended the model to a two-way fixed effect model and the

results were very similar to the one-way fixed effect model we
present in this section.
18
Table 14
Impact of Bag-Fee on Spillover-Adjusted Departure Delay

(Minutes) (First and Second Differences)
Post-event-1 vs.
pre-event
Post-event-2 vs.
pre-event
Southwest
first diff.
Non-Southwest
first diff.
00363
4002235
00330
4001625
10233
4001905
10595
4001895
Change
(second difference)
00870
4002935
10265
4002455
Statistically significant at 1% level based on the Students t-test.
and then it allows us to compare the effect of the

treatment for groups affected by the treatment versus groups not affected by the treatment. We followed
the difference-in-differences estimation methodology
described in Card and Krueger (1994). In our case,
the treatment is the implementation of checked baggage fees and the control group is represented by
Southwest Airlines flights. Similar to the above panel
data approach, we restricted the data for this analysis
to routes (origin-destination airport pairs) served by
Southwest Airlines and by at least one other airline
that implemented baggage fees. Similar to the propensity score matching analysis, we divided the postperiod in our data into two time periods: post-period
for the second checked bag fee implementation (T 2a >
t > T 1a ) and post-period for the first checked bag fee
implementation (t > T 2a ). For each route, we calculated the average spillover-adjusted departure delays
for three periods separately:17 pre-event (t < T 1a ),
post-event-1 (T 2a > t > T 1a ), and post-event-2 (t >
T 2a ). Note that we computed these averages for the
treatment (non-Southwest) and for the control (Southwest) groups separately. Thus, for each route, we first
obtained the first difference of the post and preevent average departure delays for both Southwest
and non-Southwest airlines. We then obtained the
second-difference for each route by subtracting the
first difference for Southwest from the non-Southwest
first difference. Table 14 shows the average value of
the changes in spillover-adjusted departure delays for
both the control and the treatment groups before and
after the implementation of the baggage fees (i.e., first
differences), as well as the second differences.
The results in Table 14 suggest that for both Southwest and non-Southwest airlines, implementing baggage fees improved the departure delay performance.
This difference-in-differences of the changes for postevent-1 period is 0.87 minutes and 1.27 minutes
for the post-event-2 period. The t-statistic for these
means are 2.98 (p-value < 00001, df = 160) and 5.16
17
There are routes on which more than one airline competes with
Southwest Airlines; we used only the routes with exactly one competing airline to be able to set bag fee implementation dates, i.e.,
T 1a and T 2a .
(p-value < 00001, df = 144), respectively, and therefore these difference-in-differences means are statistically significant based on the Students t-test. Thus,
the difference-in-differences analysis suggests that the
implementation of the second bag fee resulted in
an improvement in on-time departure performance,
and a further improvement was observed after implementing the first bag fee.
4.1.4. Falsification Test (Placebo Test). To test the
validity of our model, we also ran a placebo test
where we chose an arbitrary bag fee implementation date and tested whether airlines charging baggage fees achieved abnormal improvements in their
departure delays in this pseudo after-period. The idea
behind this test is that if our model were incorrectly
specified, then it would identify an impact of baggage
fees even in a data subset of an arbitrary pre-period
as if a baggage fee introduction date was randomly
assigned in this period (false positive). We conducted
this test on flights covering the period from May 1,
2007, to May 4, 2008 (our pre-period). More specifically, we chose November 5, 2007, as our pseudo baggage fee implementation date. Using flights prior to
this date, we reestimated the abnormal delays in the
new post-period after November 5, 2007, using our
original model. The placebo results do not indicate
any significant abnormal improvement in departure
delays in this fake post period. Thus, the placebo test
confirms that our results are not driven by model
specification.
4.1.5. Time Trend Analysis. We also checked the
robustness of our results to the presence of time
trends. We reran the model in (3) three times. First,
we added a time variable corresponding to each day
in our data set covering the period from
May 1, 2007,
to May 1, 2009. Then, we addedthe time variable.
Finally, we added both time and time variables. The
results showed the existence of a statistically significant time trend on only 12%, 11%, and 13%, respectively, of the routes in our data set. Thus, time overall does not have a significant effect on the results;
i.e., 88% of the routes did not show a statistically significant time trend. As can also be seen in Table 15,
including time variables in our model does not have
a significant effect on the results.
It is important to note that the lack of a true experimental design puts several caveats on the findings
Table 15
Time Trends Analyses
Mean of abnormal
departure delay
time
included
time
included
time and time

included
Bag-Fee = 1
Bag-Fee = 2
1060
3021
1049
2064
1072
3006
Statistically significant at 1% level based on the Students t-test.
19
from these different robustness methods. However, it

is encouraging that these methods confirm the directional results of the impact of baggage fees on departure delays found from our main model.
5.
Conclusions
Due to the implementation of fees for checked bags

by the majority of U.S. airlines, customers now check
fewer bags resulting in savings due to lower labor
costs for handling checked bags. A second change
in customer behavior due to the implementation
of baggage fees has been observed by many frequent travelersthat airline customers are carrying
on more bags after the implementation of the fees
and that the storage process of these overstuffed
carry-on bags causes the boarding process to take
longer. Thus, while the number of checked bags may
have decreased, there may have been a corresponding increase in the quantity of bags carried on, which
may, in turn, have had a detrimental effect on the airlines costs through a decrease in their on-time departure performance. As is the case with many incentives
and penalties, finding the right amount for each that
results in a net positive change in customers behavior
is a complex task. Because predicting how customers
will respond to incentives and penalties is, to say the
least, an inexact science, the question of whether the
implementation of baggage fees was associated with
a net positive or negative effect on departure delays
must be answered empirically.
Our study provides an empirical support that the
checked baggage fee policies were associated with
an improvement in a key airline performance metric, on-time departure performance. More specifically,
the implementation of the second checked baggage
fee resulted in an improvement in average departure delay by 1.3 minutes and a median improvement of 3.3 minutes. The subsequent implementation
of the first checked bag fee resulted in an improvement in average departure delay by 2 minutes and
a median improvement of 4.2 minutes. Thus, there is
some evidence that the below the cabin effect from
implementing the checked baggage fees was greater
than the above the cabin effect. The implementation
of baggage fees by the airlines also had a positive (but
smaller) impact on the departure delay performance
of airlines such as Southwest, which did not charge
baggage fees. One possible explanation for this carryover effect is that, at many airports, the security
screening and processing of checked bags is centralized, so that fewer checked bags by any of the airlines
benefits all of the airlines which fly from that airport.
Given the recent focus on auxiliary fees in the airline
industry, our results have significant implications for
the airlines, and, in particular, airlines such as Southwest which still contemplate whether to charge baggage fees.
Our research also sheds some light on the marketing versus operational decisions made by a very
operationally focused airline. When the other airlines
started charging for checked bags, Southwest Airlines decision to not charge for bags went against
their high operational service-level strategy as they
experienced a decline in their relative departure delay
performance rankings. Thus, it appears that bags
may not really fly free, in an operational sense, at
Southwest. Ultimately, operations managers need to
be involved in the discussions about marketing initiatives such as the Bags Fly Free campaign that
Southwest used when the other airlines began charging for checked bags. For an airline that has historically prided itself on its relatively higher operational
customer service rankings, such as on-time departure
performance and lost baggage performance, this marketing initiative may have resulted in an unforeseen
drop in their competitive performance. A small relative decrease in departure delay performance has
direct financial implications as well. In 2005, Southwest estimated that, if its boarding times increased by
10 minutes per flight, it would need 40 more planes
at a cost of $40 million each to fly the same number of
flights (Lewis and Lieber 2005). When other airlines
started charging for the second checked bag, our analysis shows that Southwests decision to not charge
for it cost them an additional 0.87 minutes per flight,
and the decision not to charge for the first checked
bag cost them an additional 1.27 minutes per flight
in departure delay improvement (see Table 14). These
decisions resulted in an estimated financial impact of
approximately $24 million (not charging for the second checked bag) and $35 million (not charging for
the first checked bag) per year in additional cost.18
Thus, despite the marketing slogan of Southwest, it
appears that bags do not actually fly for free.
When Southwest merged with AirTran Airways,
they faced a difficult decision of whether to keep the
baggage fee policy in place at AirTran (which charged
baggage fees) or convert them to their no-baggage fee
policy. Our research shows that this decision is more
nuanced than it may first appear. Southwest initially
decided to keep the baggage fee policy at AirTran
in place until the complete transition of the systems
and planes took place. This decision appears to be in
18
This estimation is based on the differences identified in Table 14.

We multiply these differences (0.87 minutes and 1.27 minutes)
by a delay cost of $19.49 per minute for Southwest Airlines
(Ferguson et al. 2013) which operates more than 3,900 flights a
day, 365 days a year (http://swamedia.com/channels/Corporate
-Fact-Sheet/pages/corporate-fact-sheet#history, last accessed January 2016).
20
line with their historical strategy of providing superior
operational performance. Changes may be coming at
Southwest as well. Nicas and Carey (2014) note that
for years Southwest has had superior operations metrics compared to its competitors, yet in the fourth
quarter of 2013, it ranked dead last in important metrics such as lost bags per passenger and on-time performance. Even though they have stuck by their Bags
Fly Free mantra, Southwests CEO Gary Kelly has
recently said that he was open to the idea of charging
baggage fees in the future (Nicas and Carey 2014).
Acknowledgments
The authors are grateful for the thoughtful and constructive
feedback provided by the department editor, Serguei Netessine; the associate editor; and three anonymous referees.
The authors thank organizers and participants of the Wharton Empirical Research Workshop, and the Airline Group of
the International Federation of Operational Research Societies (AGIFORS) symposium.
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Do Bags Fly Free

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This article was downloaded by: [129.237.236.

227] On: 15 August 2016, At: 09:16

Do Bags Fly Free? An Empirical Analysis of the Operational

To cite this article:

Articles in Advance, pp. 120

Do Bags Fly Free? An Empirical Analysis of the

Lines, Northwest Airlines, and US Airways quickly

The once industry standard of two 50-pound free

Alaska Airlines and JetBlue Airways instituted the first checked

Nicolae, et al.: Do Bags Fly Free?

bring overstuffed carry-on luggage with them into

Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS

positive effect on arrival delays, causing delays on

zational learning curves in the airline industry. Using

There are reasons to expect that the impact of charging baggage

Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS

the number of connecting flights (and thus transfers

Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS

based on the scheduled departure/arrival time (e.g.,

Dates on Which Baggage Fee Policies Went Into Effect for

July 15, 2008

Thus, any effects in departure delay performance are

3.1. Variables and Model

See details of spillover-adjusted departure delay calculations in

Of the 320,234 dropped observations, 295,535 have at least one

http://www.ncdc.noaa.gov/cdo-web/search (last accessed January 2016).

Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS

Time Line for the Event Study

the scheduled departure, the departure delay was

delay of flight i. This eliminates the serial correlation

One-hour time block based on the scheduled arrival time of flight i

Expected number of passengers on the aircraft that flew flight i

Snowfall level at the destination airport on the day of flight i (millimeters)

Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS

Minimum turnaround time (Ti ) (min)

As crew schedule information is not publicly available, we

Therefore, we computed the spillover-adjusted

Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS

Total Number of Domestic Flight Operations in the United

connecting passengers from late incoming flights,

Source: BTS, http://www.transtats.bts.gov.

(aggregated over all airlines) by each month of our

Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS

Air carrier delay

Average load factor by month

Average departure congestion by month

Nicolae, et al.: Do Bags Fly Free?

Pre-event data set

Post-event data set

flight is a Southwest Airlines flight from Chicago

Nicolae, et al.: Do Bags Fly Free?

Management Science, Articles in Advance, pp. 120, 2016 INFORMS

For our main method, we used a sophisticated

Here, X is the vector of factors that affect flight

+151 j Dest-Awndi1 j1 t +161 j Origin-Awnd-Sqi1 j1 t

This abnormal delay measure can then be used to

+171 j Dest-Awnd-Sqi1 j1 t +181 j Origin-Tmini1 j1 t