Recently American Airlines started charging $15 for each checked baggage. Why did the company not charge $15 to $20 more per ticket and quietly avoid this publicity?

Question

What will be an ideal response?

Answer 1

This is a very good example of strategic play at various levels. If the company increased the price, then consumers would switch to other airlines, and this loss in sales would have affected the company heavily. By charging a fee for checked baggage, the company technically shifts the onus on to the consumers. Consumers who have already planned their trips are not going to shift for a mere $15, and new consumers will have to weigh in all the costs and benefits from searching for lower ticket prices. This risky decision made by the company may pay off, since all companies have had to make adjustments in recent months due to cost-push inflation. Indeed, the publicity serves as strategic advertisement that other companies cannot vie with.