Curse of the $8 Blanket

We've heard a lot about one health insurer raising its rates by up to 39 percent. Yet in the past year, the price of another widely used commodity has gone up 50 percent industrywide. Not only that, it's for something that was free prior to 2008: the privilege of checking a bag on a U.S. airline. The average price for the first bag is now around $25.

Charging for bags is an example of what price consultants call unbundling (and everyone else calls "nickel- and diming.") Instead of offering checked bags (meals, headphones, blankets, etc.) for "free" with the ticket, they price them separately. The reason is simple: Most travelers pick an airline based on the lowest fare. Think what the hotel business would be like if everyone refused to pay a penny more than the Motel 6 rate. Customers would probably have to pay extra for blankets — as American Airlines travelers will, starting May 1. A blue fleece blanket and inflatable pillow will run $8. Jet Blue and U.S. Air customers are already paying for blankets.

Everyone hates paying to check bags — so much so that we're breeding a wrinkled generation of travelers living out of a carry-on and washing clothes in expensive hotel sinks. And people who could well afford an $8 blanket shiver through the red-eye, compromising an expensive day of business or vacation — because "it's the principle of the thing!"

To look at the bright side, you get to keep the blanket. Where else can you buy a blanket and pillow for $8? Some quick math suggests that a $25 baggage fee isn't excessive, either. That's something like a dollar a pound. If airlines charged passengers by the pound, $1 a pound would be a good deal for cross-country travel (even for Kevin Smith). But that's logic, and emotion is something else again. We all remember the days when baggage and blankets were free. That makes any charge feel like a gouge.

Unbundling is a powerful technique for drawing customers. They just might not be happy customers. The people who pay the fees resent them, and the people who refuse to pay resent the airline for making them live like hobos. The culprit may not be the airlines so much as human nature. Because prices are quantitative and easily compared, they carry undue weight in our decision making. We don't pay quite enough attention to the intangibles of comfort and convenience, simply because they are intangible. In another context, this is known as "megapixel bias." Camera buyers favor cameras with more megapixels, even though such cameras don't necessarily produce better pictures. But megapixels are numbers, and everyone knows an 8 megapixel camera has more of something than a 7 megapixel model does. (They know this, even if they couldn't begin to define the word "megapixel"). In reality, picture quality is determined by many subtle factors that aren't easily compared on a spec sheet.

In a recent New York Times piece, airline industry analyst Robert W. Mann asked, "How do you run an industry where people hate you?" It's a good question, and so far, no one's found the answer.