When One Item Has More Than One Price

JetBlue now has dynamic baggage fees.

What you pay depends on when you check your baggage.

Dynamic Prices

Several years after the 1978 Airline Deregulation Act, one Delta executive became horrified that his reservations staff had lowered fares for the Atlanta/Washington D.C. route as the departure date approached.

I suspect I would have lowered those fares also. If you have empty seats, it makes sense to attract more fliers by lowering the price. The right approach though was precisely the opposite. The airline should have been increasing fares because last minute fliers are willing to pay much more.

Because of deregulation, airline decision makers had a new world of fare making to navigate. Whereas previously government’s Civil Aeronautics Board let airlines preserve a healthy bottom line, now competition and markets would set prices. Quickly moving to a dynamic pricing model and a different price for each flier, the airlines had to determine whether the flier was discretionary or business, if the flight was departing in days or months, and how many seats remained.

Now they’ve entered new territory.

Dynamic Baggage Fees

We know that when we book a flight determines what we pay. However, in addition to the fare, with JetBlue, it’s the baggage. Ranging from $35 to $50, our bag fee will depend on whether it is checked on a peak date. Then, receiving a discount for timing, we save $10 for checking our bag when booking the flight. However, it will cost us an extra $15 if we check a bag on a peak date within 24 hours of takeoff.

This is JetBlue’s Dynamic Pricing Plan:

Our Bottom Line: Price

A price is a handy source of information. In a market system, when prices freely fluctuate, they send a message. On the demand side, a price tells us what is cheap or expensive, well made or popular. On the supply side, prices let producers plan for profits.

But more than anything else, prices are nudges from Adam Smith’s invisible hand. Responding to prices, we make decisions. And, when they vary, the nudge is a bit more complex.

My sources and more: Yahoo Finance told the JetBlue baggage fee story while I copied the baggage fee tables from the JetBlue website.

Please note that several of today’s paragraphs were in a past econlife post.