Baggage Fees and Airline Performance

Leveraging cognitive appraisal theory, this manuscript investigates how implementing the new baggage fee policy impacts carriers' financial performance, on-time performance, and consumer complaints. Utilizing the latest event study methodology from the econometrics field, our analysis shows that the effect of this policy is twofold and non-linear. Financial performance deteriorated immediately upon the policy implementation and continued to decline before eventually improving, demonstrating a U-shaped curve. On-time performance improved instantly upon the policy implementation and continued to improve before eventually deteriorating, showing an inverted U-shaped curve. Consumer complaints surged instantly upon the policy implementation and continued to rise but at a diminishing rate. Our different findings on the impact of the baggage fee policy extend the current stream of airline literature and provide new managerial insights for airline managers.