United's Baggage Money Grubbing: A Lesson About Why Total Cost Matters

When I was in the office earlier today, my wife and fellow blogger, Lisa Reisman, forwarded an article from Crain's Chicago about how United Airlines is getting greedy when it comes to surcharges for baggage. A small thing you say, but considering that United is one of the country's largest business airlines, this is something we should all pay attention to, as these "hidden" fees may soon become as substantial as the ticket for many travelers. According to the story, "United Airlines will start charging domestic passengers $25 to check in a second piece of luggage if they are not part of its [elite-tier] frequent-flier programs ... The charge will generate more than $100 million in revenue and cost savings each year."

Considering that a quarter of all United customers check a second bag, this is something that businesses will no doubt end up paying out the nose for (especially as other airlines follow United's lead). And these charges are on top of the $100 (per bag) that United charges for the third and fourth bag a passenger might check.

Let's see how this adds up. As a business traveler, if I check my golf clubs, a regular roller bag, and a third bag (e.g., marketing samples) on a trip to see a client, I would be stuck paying $125 -- or $250 for a round-trip. This amounts to roughly a half to two-thirds what many of the tickets that I've been buying cost these days. Of course for those who reach elite status in United's mileage plus program -- where they give you a couple extra inches of legroom but still expect you to fly on three and a half hour flights eating peanuts if you don't want to pay for a meal -- the fee is waived. But despite this elite flyer waiver, I suspect that businesses will still be fronting a large percentage of the $100 million in revenue United hopes to capture with this move.

United's action is a perfect lesson in why companies need to consider total cost when it comes to sourcing and the lifecycle of managing suppliers. Sure, you say, your travel procurement person negotiated a 10% annual rebate on United if your organization commits a certain amount of revenue, but now, how much of that revenue will come from bag surcharges? I did not even mention that, most likely, these charges will not even be factored in as part of that discount figure, since they are not addressed at the time of ticketing (we all know how airline systems are conveniently un-integrated when it comes to errors in the passenger's or businesses' favor).

Overall, this is a great example of how procurement organizations need to extend their reach to new categories of spend by providing process expertise and tools to help capture and manage the total cost elements inherent with working with a supplier (many of which might slip through the cracks when sourced and managed in a more traditional way). Whether it's hidden baggage fees or something else entirely like expediting, fuel surcharges, or another type of nefarious cost that might not come to light in the initial negotiation process for a specific category of spend, a tried and true strategic sourcing and holistic Spend Management approach can help organizations to better spell out upfront exactly what they are looking -- and willing to pay -- for while also ensuring compliance on the back-end. So we should all give United a friendly 20,000-foot thank you for making us aware of why eternal total cost vigilance is the price of spend liberty.

- Jason Busch

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