New Whole-of-Government Initiative on Junk Fees Comes with Unintended Consequences

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Today the Biden administration announced a new whole-of-government initiative on junk fees from airlines and other industries. The news comes on the same day as CEI releases its annual Ten Thousand Commandments report, which details other whole-of-government initiatives on issues like equity and climate.

Many of the charges the administration calls junk fees are examples of something called “unbundling.” It’s a version of the “user pays” principle, and can save people a lot of money. Take airline baggage fees, which are on the administration’s target list.

If an airline were to charge a single price to all passengers, then people who don’t check luggage pay for that service anyway through a higher ticket price. They also subsidize other passengers who do check bags. That isn’t fair. People understandably grouse at getting out their credit card twice instead of once, but in many cases unbundling saves people money.

Unbundling baggage fees means people only pay for the service if they use it. Moreover, people who do use the service pay for it in full.

The same principle applies to people who buy meals, drinks, or blankets on their flights. People can pay for them in a higher ticket price whether they use them or not, or they can save money by unbundling them from a lower ticket price and paying only if they use them.

Unbundling is a form of price discrimination, or charging different prices to different customers. This allows people who are satisfied with a bare-bones experience to save money, while those who want more services can get it on their own dime. Unbundling is also evidence of a competitive market in which airlines compete on price. Antitrust authorities should take note.

Incentivizing people to only check baggage or buy food and drinks when they need to also reduces airplane weight, which saves money and fuel and can further lower ticket prices while reducing emissions.

In this case, unbundling and price discrimination help to advance another of the administration’s whole-of-government campaigns, on climate change. Since this goal contradicts the new junk fee initiative, how will the administration decide which to prioritize? This question will come up repeatedly as the administration announces more and more such initiatives.

For more on whole-of-government initiatives, see the new Ten Thousand Commandments.