Ryan Air Going For No Checkin Bags

Ryan Air arguably the first to practice airline unbundled pricing used to charge a per bag checkin fee. In the next round of unbundling they decided to completely remove checked bags. It is understandable if a business decides to reduce service instead of practicing unbundled pricing to better manage customer perceptions. Ryan Air was already charging separately for the bags and its customers were already trained to pay for bags. So why drop a revenue generating service?

This is a great case study of one of the three components of Effective Price Management – Incremental Analysis. It is conceivable that the true marginal cost (without fixed cost allocation) is $0 per bag, so an fee they charge is pure profit. But they are looking at the total cost to offer the baggage service, and whether or not the service as a whole generates profit. Since they were charging separately for bags it is conceivable that people were trained to carry less to reduce or avoid what they pay for bags. With fewer people using the service the revenue generated is most probably not be enough to support the fixed costs associated with the service.

That explains the service reduction. This move could actually be generating more profits from cost savings.

Do you practice Effective Price Management?