Source: Air Transport World
Author: Aaron Karp

IT ALL BECAME A BIT TOO MUCH FOR United Airlines to handle. On average, each passenger began checking 10% more baggage following last August's London terror scare and ensuing security rule changes related to carry-on items. The amount of checked luggage grew even larger during the holiday season.

The higher volume put stress on UA's ground workers and handling systems. Then two winter storms poured more than 2 ft. of Christmas weekend snow on the carrier's Denver International hub, forcing cancellation of well over 1,000 flights and costing an estimated $30 million in revenue as the groundings reverberated across its network. The escalating sequence made handling the increased number of checked bags extremely difficult, prompting UA executives to consider new alternatives to ease the baggage-handling burden.

"Take the storms we had in December and merge the challenge with holiday bags it all came together to create quite a challenge for our ground staff," Executive VP and CFO Jake Brace says. Revising the way UA handles checked baggage is "definitely a challenge we will have to address in '07," says Chairman, President and CEO Glenn Tilton. "The costs are up and we're looking at a full range of opportunities to mitigate the costs, which is both a manpower cost and [expenses associated with] mishandling."

Asked by ATW if charging fees for checked bags is under consideration, Tilton acknowledges, "That would be included in the 'full range.' We've got to look at our baggage capacity and our transfer processes." That UA executives would even contemplate charging passengers for checking bags something that has been taken for granted as a service that comes with an airline ticket demonstrates just how strenuous moving all those suitcases is becoming for carriers.

A number of airlines around the world, including British Airways, Aer Lingus, Air Canada, Flybe, Ryanair and Norwegian, already have tweaked their policies in an effort to bring discipline to passengers' packing habits and perhaps even generate revenue.

For BA, the move came in the wake of its own weather-related meltdown at London Heathrow in December after an extended period of fog that resulted in more than 800 cancelled flights coincided with two baggage system outages to put "considerable pressure" on its handling abilities. The result was at least 10,000 orphaned bags that in many cases took weeks to be reunited with their owners.

The situation was so bad that in early January BA moved upwards of 5,000 bags to Milan, where a specialty distribution and courier company sorted through them to try to figure out where they should go. The airline said it also used freighter aircraft to move bags; it leases three 747-400Fs but it is unclear if those were deployed or additional freighters had to be contracted. "We normally handle 75,000 bags every day," BA said in a statement, adding that the fog and baggage system failures "caused severe backlogs which took time to clear . . . The process of handling delayed baggage is complex."

Indeed, the task of moving billions of suitcases, boxes, consumer goods and sporting gear each year has gotten even more complicated since 9/11. Carriers around the world have reduced staff numbers there are 150,000 fewer airline workers in the US alone and investment in ground equipment, automation and IT has lagged the recovery. Meanwhile, the widespread requirement for 100% baggage screening added a new step in the process and provided yet another chance for bags to be delayed or misdirected. Throw in strict carry-on regulations in place since Aug. 10 and continuing healthy traffic growth and the stage is set for an increasing number of systemic breakdowns such as those experienced by United and BA last December.

Lost Revenue

SITA, the IT provider that specializes in tracking airline baggage, estimates that carriers mishandle 30 million bags globally every year, leading to $2.5 billion in added costs. And those are just the direct costs of locating the lost bag in the system and returning it to the passenger; IATA estimates that each mishandled bag costs an airline $128. There is no way to calculate the costs in terms of angry customers who vow never to fly Airline X again because lost baggage ruined a vacation or left a business traveler without the proper attire for a key appointment.

In the US alone, passengers filed 3.5 million lost baggage reports with the Dept. of Transportation in 2005, up 23% over 2004 and the industry's worst performance since 1990. DOT estimates that US airlines mishandled 10,000 bags per day in 2005. Delta Air Lines alone lost more than 570,000 bags that year, the highest total among US carriers. Data released by DOT as this article went to press shows that the situation did not improve in 2006.

Yet the numbers, while huge, represent a tiny fraction of the bags handled each year, "less than 1% of all checked bags," SITA VP-Airport Services Catherine Mayer notes, adding that the vast majority of those bags are returned to the passenger. "Lost 'lost bags' are really very, very few," she says. "The bulk of lost or 'mishandled' bags are in fact delayed" and returned, on average about 31 hr. after the passenger's flight has arrived. "Unfortunately for the industry, any one bag lost could be on the day [a passenger] has that important meeting or is attending a wedding," she says.

Consequently, airlines have gained a reputation, fairly or not, for being largely incompetent when it comes to handling baggage, with lost luggage serving as standard fodder for many comedians' joke repertories. What the general public may not realize is that carriers essentially are providing a "free" add-on service by moving large volumes of checked baggage at a high cost. As a point of comparison, consider that a 20x27x10-in. box the dimensions of a fairly standard suitcase weighing 50 lb. would cost $208 to ship from New York to Los Angeles via UPS by next-day air, according to the parcel delivery giant. And while UPS does provide door-to-door delivery, airline passengers enjoy the convenience of dropping off their bags at the beginning of their air journeys and retrieving them immediately on arrival.

"Passengers have the notion that they have the right to bring bags," says Satish Jindel, founder and president of logistics and transportation consultancy SJ Consulting Group. "This is not a public service, the airline business. Airlines need to develop the mentality to say, 'You pay me for transporting you as a passenger. If you want to bring bags, I'll charge you.'"

Some carriers are beginning to do just that. BA changed its baggage policy last month by placing restrictions on the number and size of bags that can be checked and charging customers fixed fees of up to £120 ($232) per excess bag. It says the new system will simplify the airport check-in process for both passengers and its ground staff. Its old baggage restrictions, based on weight, meant that cumbersome calculations held up lines at airport counters.

"This will undoubtedly make things a lot quicker," BA spokesperson Michele Kropf says. Worse, staffers sometimes were injured lifting luggage weighing as much as 70 lb., highlighting another indirect cost. "It becomes a problem of lifting. Staff were hurting themselves," Kropf says. Jindel comments, "The airlines are starting to recognize that luggage handling poses significant costs in many ways."

Budget airline Norwegian in January introduced a charge of €3 for all checked bags; passengers are permitted to check two pieces weighing up to 20 kg. each. Aer Lingus is levying an €8 fee for checked bags on short-haul flights. The bags can weigh no more than 20 kg., with an additional €8 charged for each kg. over 20. The per-bag fee can be lowered to €4 if the passenger pays online before coming to the airport. Likewise, Ryanair is charging a €7 fee for each piece of checked luggage with a maximum of five pieces permitted per passenger. The fee is lowered to €3.50 if it is paid online at the time the reservation is made. The airline also is placing a maximum weight and size limit on allowable checked bags.

Air Canada, which carried 400,000 tons of checked baggage in 2005, now offers travelers using its low-fare Tango product a C$5 "Go-fares" discount per segment if they agree not to check bags. The program likely will be expanded to other fare categories. AC also notes that it experienced a 70% reduction in workplace injuries related to baggage handling when it lowered its weight limit for checked bags from 70 lb. per item to 50 lb.

A La Carte

These policy changes are aimed in part at changing travelers' baggage habits. "Why should I bring a golf bag for free?" Jindel asks. "It is about creating a change of behavior" by giving passengers a financial incentive to pack less. He likens the current checked baggage paradigm to an all-you-can-eat buffet where diners pile food high on their plates and often waste it. At an a la carte restaurant, diners choose more carefully. "People don't need to bring everything with them," he says. "Bring what you want, but I'll charge you for it. Use the capitalist system. People need to associate a dollar value with the handling of bags . . . It is not going to change itself. The industry has to change."

Pointing to the express cargo business, Jindel notes that FedEx and UPS impose "shipper discipline" by levying charges for poor labeling or shoddy packaging. "It's $10 for a bad address because it's going to cost the carrier time and money to try to figure out where the delivery should go. And extra money for extra handling of a shipment not in a box."

UPS says it puts time and resources into customer education. "We really do try to focus on talking about how our business works, emphasizing the assets and people and effort that goes behind it," spokesperson Steve Holmes says. "There's a level of understanding among the public of the cost of moving packages around a global network."

Recent years have seen airlines attempt to maximize revenue opportunities and keep costs down, carefully tracking expenditures cent by cent. But Jindel says numerous conversations with carriers regarding baggage costs have revealed that "no one has a clue" how much total money is spent handling and transporting checked luggage. "It's amazing. They can tell you exactly what the cost of a meal is . . . but the only cost the airlines track on baggage is what it costs having to deal with mishandled or misdirected bags. Airline management is still consumed and preoccupied with looking at bags as connected to passengers and they can't break up [the cost]. They're chasing pennies in so many other areas but letting dollars slip by when it comes to baggage."

"Free" meals are a fading memory. Passengers are pushed to buy tickets online, thus cutting the need for call service operators. Every opportunity to lower fuel expense is explored. But what about baggage?

"It's very expensive to move all these bags," American Airlines Chairman and CEO Gerard Arpey agrees. AA transports 350,000 checked bags daily. "We've nipped at the edges of getting revenue [from baggage]," he says, adding that the airline has "certainly considered" moving to a fee system but "that's not a bridge we've been prepared to cross as yet."

How many will cross that bridge? That depends on how high the cost of handling baggage becomes and how receptive passengers are to paying for a service they've come to take for granted. Mayer says airlines have to find better ways to manage checked luggage or the number of mishandled bags will continue to rise. "Too often [a piece of luggage] falls into a black hole," she says, recommending integrated bag check-in systems as well as installing inline explosive detection equipment at airports. "Keep as much control or surveillance on the bag as possible," she advises.

She notes that 61% of lost bags result from a "bag transfer mishandle" that occurs long after they are checked by the passenger. "Automated, integrated systems are key," she says. "We need to have information on bags shared with all relevant parties immediately. Without automation, you're depending on humans and introducing risk into the system." Barcodes can be helpful, she asserts; even better would be widespread use of RFID, "which could have big benefits if implemented globally but also has immediate benefits at airports where it is installed".

UPS credits advanced technology, including high-tech labeling and conveyor sorting systems, with allowing it to move high volumes of packages quickly and reliably. "Technology is the number one biggest thing that has helped us grow and carry the volume that we carry and vastly improve our reliability," Holmes says. The company's barcoded "smart label" contains detailed data, instantly giving all handlers in the delivery chain the information needed to move a box between two points within the requested timeframe.

Arpey argues that public perception aside, major airlines "do as good a job [moving baggage] as FedEx" does moving cargo given all the logistical issues with which they contend. "The industry in general does a good job despite all the bad press," he insists.

LUGGAGE SHIPPERS

While airlines seek alternatives that will lower baggage handling costs and reduce the number of lost bags, some passengers already have chosen their own alternative: Pay to ship luggage separately.

UPS says it does move a small but sizable amount of airline luggage, mostly via businesses that offer door-to-door baggage handling and essentially act as freight forwarders for passenger bags. "It is not by any means a large part of our business nor is it a focus of our business," UPS spokesperson Steve Holmes says.

But Richard Altomare, chairman of airline baggage mover Luggage Express, says it is a growing business. Luggage Express charges passengers an average of $40-$45 for a one-day domestic delivery, rising to $70-$75 per bag for next-day shipping. "We've moved 31 million suitcases and we've never misplaced or lost one," he claims. "The suitcases are picked up by one of 4,000 companies that we contract, including UPS, FedEx and DHL. The luggage is barcoded and tracked from the beginning and tracked the whole way." He says the company is moving "300 to 500 orders a day . . . More and more people are using us. This is an alternative. I'm not saying it's a replacement for the existing system yet."

Holmes says UPS has decided not to specifically market shipping luggage, which can pose challenges, particularly when passengers attempt to ship "irregular" bags through the carrier directly. "I wouldn't doubt there's been some hallway conversation [about promoting luggage handling]," he says. "But when you step back and look at the opportunity compared to the hurdles, commonsense prevails . . . Our conveyors really aren't designed for luggage."

International shipping can be even more of a trial because the luggage becomes subject to Customs. Altomare says most international shipments that Luggage Express handles require 3-5 days to deliver.