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Comment by mikeash | Hacker News Reader

#2 is complete BS (fuel is an inherent part of the cost) but I have no problem with the rest. I especially don't get the outrage over baggage fees. Transporting passenger baggage costs money, both due to handling it, and due to the opportunity cost of cargo they could be carrying instead. "Free" baggage just means that light travelers subsidize people with bags. That's great if you have bags, but not great if you don't, and incentivizes inefficiency.

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The flip-side is with baggage fees, passengers have incentive to sneak bulky baggage into the cabin, or carry the absolute maximum allowed amount of carry-on. This ends up forcing people to gate-check their luggage, because the cabin runs out of space. This costs time and annoyance.

I assume the airlines have done the math and the time cost is less than the increase in revenue.

All that said, I almost always fly carry-on only, for my own convenience (no waiting at baggage claim, no lost/damaged luggage, etc). I often wonder what on earth some people are taking with them on vacation - I can do a two week vacation with carry-ons (1 luggage, 1 small backpack), and that includes a bicycle kit (helmet, shorts/jersey, shoes, and pedals) on top of normal clothing.

I'm skeptical that baggage fees have a lot to do with people bringing carryons on board. Business travelers typically don't personally pay for checked luggage and many are exempted anyway because of frequent flyer programs. Yet most just take carryons for the flexibility and to save time--and because they usually know how to pack efficiently. When I walk through the departure level, most of the people I see lined up to check vast piles of suitcases look mostly like families traveling.

Anecdata, but I have gone from 100% checkin to almost 100% carryon because I'm simply not interested in paying one more fee. I'd rather have someone handle my bag for me, especially if the alternative is schlepping it through multiple connections, but the airlines have incentivized people to carryon instead. It absolutely slows down boarding and fills overheads. This is probably why Southwest still allowed 'free' bags; they turn around planes quicker than anyone else.

Then there's always the jerks who bring their entire matched luggage set as "carry on" and then bitch and moan that nobody will move their stuff in the overhead for them, and act offended when anyone heaves a sigh and rolls their eyes as they trudge up and down the aisle looking for somewhere to shove their bag that they know won't even fit anyway. "I fly all the time, I know it will fit" -_-

>The flip-side is with baggage fees, passengers have incentive to sneak bulky baggage into the cabin, or carry the absolute maximum allowed amount of carry-on. This ends up forcing people to gate-check their luggage, because the cabin runs out of space. This costs time and annoyance.

Right, but that's an artifact of only charging for one of two "cost-adders", when they're close substitutes.

It doesn't refute the general point that it makes sense in general to charge more for things that add legit costs; the problem here is that they're not being consistent about it. Per previous discussion, charging for carry-ons seems to make more sense than charging for (a moderate allowance of) checked luggage:

https://news.ycombinator.com/item?id=13311317

You're right. Charging for baggage is reasonable, but the in-cabin consequences are pretty annoying. I'm actually surprised that it's worth it, given how much extra time it must take to turn around an airplane.

The "right" answer would, of course, be to charge for carry-on luggage too. I think some airlines are starting to do this now. I bet their customers won't be happy though.

The "fuel surcharge" is usually a tax dodge. British Airways, which has the most notorious surcharge in the industry, does it because the taxes only apply to the fare itself; if they split out fuel charge separately, they only get taxed on the base fare.

Also taxes are paid when you redeem miles for an award flight. BA is happy that you have to also pay ~1/2 of the ticket price in cash besides the miles.

Interesting! I assume there's some requirement to at least vaguely reflect the actual cost of fuel, so they can't just charge $1 for the "fare" and put the rest as a tax-free "fuel surcharge"?

The entire point of VAT is that it takes care of situations like this one; is there something funny about VAT for fuel?

Not saying I agree, but I believe the general argument is that if tax was already paid/collected when the fuel was purchased, unbundling it from the fare price prevents it being taxed again.

How are fully-consumed process inputs handled in VAT? It's easy to calculate non-consumed inputs. They paid $x per kg of aluminum. Each finished product contains y kg. So the "cost basis" for each product is $x * y.

But what happens to, say, the electricity used to melt the aluminum before being poured into molds?

I think it works as follows: say you make sales for one million plus 20% VAT. You get paid 1.2mn, but 200k are for the taxman. However, you already paid VAT for your inputs, say 30k for 150k in materials and 20k for 100k in electricity. You then give to the state only 150k: the 200k you collected minus the 50k you paid (i.e 20% of the 'Value added' 1mn-150k-100k).

Ah, that makes sense. Relatively easy to calculate compared to the itemization I was thinking of -- at least, I'm assuming it can be aggregated in a way that makes the calculations easy.

VAT only taxes added value. So, if VAT applied to fuel, the airline gets a VAT rebate for everything that they buy (including fuel), and then pays VAT on their total sales. Nothing is taxed twice.

If there's some tax benefit to splitting a fuel surcharge out, obviously taxes on fuel aren't an ordinary VAT...

Fuel duty is its own thing in Britain, so at a complete guess maybe fuel duty subsumes/replaces VAT but then companies aren't able to offset it like they can with VAT?

I mostly agree with you. But I am willing to bet the the baggage fee is much more than what is costs the airline to transport the bag. Which would mean the airline is generating more profit from the bag people than the bag-less.

There's nothing wrong with that. Charging more than the underlying cost is how companies make money. The airline industry is fairly competitive, so if there's room to cut prices, it'll happen.

They used not to include it in the price and surprise you about it later. They knew that UA was being compared to DL to AA. Each of those companies had different prices that they paid for fuel. The other bit about that, when the fuel markets fall.. you rarely see the airfares fall as well. Right now it's incredibly low, but that's really rare. (Seeing 200/400$ fares of US->EUR flights)

I'm also guessing they could buy "fuel futures" if they really wanted to, to prevent them from being hurt by price changes.

Southwest pioneered this practice, I'm guessing they all do it now.

Airlines are locked in on their fuel prices years and years in advance. Doubtless many of them are still futured into paying the jet fuel equivalent of $4/gallon for gasoline.

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