It’s All About Extras

by Elaine Schwartz    •    Apr 8, 2010    •    725 Views

Whenever you consider doing something extra, you are thinking at the margin.

  • When airlines decided to charge travelers for more than one bag, they were thinking at the margin.
  • Still thinking at the margin, they realized they could generate considerable extra revenue by getting paid for extra baggage.
  • Also thinking at the margin, some travelers stopped taking an extra bag.
  • Still though, airlines’ extra (marginal) revenue increased by $1.5.billion.
  • Then, because planes had less extra baggage, extra fuel was no longer necessary.
  • Less fuel meant extra profits and larger profit margins.
  • For baggage handling injuries and bag losses, there were fewer extras.
  • Fewer bags meant extra room for cargo (which is more lucrative for the airlines).
  • However, flight attendants are experiencing extra injuries because passengers are jamming bigger bags into the overhead racks.
  • And finally, airlines have always thought about extras because one extra passenger on a plane typically costs them the price of an extra meal.  

The Economic Lesson

Whenever anyone considers the cost and benefit of something extra, that person is thinking at the margin. The margin is an imaginary line that separates the current amount you are doing from the extras you might be contemplating. As you can see, airlines have been doing a lot of thinking at the margin.

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