04.04.13

Airline ‘Fat Taxes’: The Dilemmas of the ‘Pay as You Weigh’ Airline Pricing Policies

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This post was written by Alberto Alemanno, O’Neill Institute Scholar .  It was originally published at http://albertoalemanno.eu/category/blog. Any questions or comments about this post can be directed to alemanno@hec.fr.

Why most airlines charge your extra-luggage but they do not charge your extra-weight? At a time of high fuel costs and experimental lifestyle regulatory action, economists, business analysts and airline operators begin to play with the idea of ‘pay as you weigh’ pricing.

Introduction

If weight is the key concern for an airplane operation, why do most airlines charge you extra-luggage but they do not charge your extra-weight? At a time of high fuel costs and experimental lifestyle regulatory action, economists, business analysts and airline operators begin to play with the idea (and many others).

Although it initially sounded as an April Fool’s Day joke, Samoa Air announced on April 1 that it is ready to initiate a plan to charge passengers according to their body weight. This tiny company is thus set to become the first airline in the world to embrace a ‘pay-as-you-weigh’ pricing policy and charge passengers based on weight rather than per seat.

There’s been talk of charging by this method for a while and some analysts believe this is how we’ll all be paying for future flights. No surprise the provocative CEO of Ryanair, Michael O’Leary, has been flirting with the idea to impose an extra levy on passengers who weigh considerably more than average.

The Science of Airline Fat Taxes

The concept has recently become the object of serious academic inquiry in an article published in the Journal of Revenue and Pricing Management, last November by Bharat P Bhatta.

The author, an economist based in Norway, suggests three methods of implementing the scheme: (i) a straightforward price per kilogram (ii) a fixed low fare with heavier passengers paying a surcharge and lighter passengers being offered a discount (iii) the allocation of passengers into three bands – heavy, normal and light and being charged accordingly. This fascinating scientific inquiry opens by observing the obvious:  under current fare policy, an airline charges the same fare to all passengers for a flight from an origin to a destination everything else being equal except passengers’ weight. For example, a 120 kg person pays the same fare as a 40 kg person for a flight ceteris paribus. This is what is generally called ‘average price’. In his own words, ‘the situation can be even worse for the 40 kg person if s/he carries a checked-in baggage weighing, for example, 30 kg because s/he has to pay extra charge for 10 kg implying that airlines charge more for 78 kg than for 148 kg for a flight” (assuming 20 kg and 8 kg as the maximum weight limits for the checked-in baggage and carry-on baggage, respectively). The reason for this – he explains – is that airlines are indifferent about the distribution of costs among the passengers: the 40 kg person pays for the extra weight of the 120 kg one. Now all appears less obvious and more intriguing. It emerges that, under the current pricing policy, a passenger gets a fixed amount of weight for the baggage and an unlimited amount of weight for oneself under the status quo.

However, given the high costs of fuels and the inherent difficulties of the airline business model, airlines are becoming increasingly aware of the critical importance of weight in a flight and are as a result increasingly desperate to reduce weight.

The dilemmas of ‘pay-as-you-weigh’ pricing

While this context seems to provide fertile ground for the emergence of such a proposal, it also raises many difficult questions: Should passengers be charged based on their body weight, like freight is? Would it be fairer than the status quo? Would it be logical? Would it be technically and economically feasible to implement the model? And finally would it work? In other words, to what extent can these price differentials provide passengers an incentive to lose weight so that they can pay a reduced fare? (This remains a big assumption in the relevant literature thus far).

While it is undisputed that all these questions deserve to be rigorously investigated both on theoretical and practical grounds, I argue that their discussion must be preceded by a broader policy question: which is the normative case for ‘pay-as-you-weigh’ pricing in the airline industry?  We should therefore rewind and pause on the first question: Should passengers be charged based on their body weight, like freight is?

While it is true that transport services are priced according to weight or volume or length or piece, these practices have historically been applied to goods and not to individuals. In other words any transport mode such as rail, road, human or pack animals, air and water has never been based on weight and space taken by a passenger ceteris paribus. As a result, charging passengers according to their body weight emerges today a new, groundbreaking concept in the passenger travel industry. Hence, so much fuss.

While it is true that all passengers are not the same with respect to weight and size and overly heavy people cause ‘more wear and tear to the airlines seats’ (The Economist recently explained us why this occurred), it is equally true that charging them on that basis may immediately be viewed as discriminatory against heavier people. (True: you may counter-argue that, under the current ‘average fare policy’ pricing, slim people pay for others’ excess weight, but that’s what both the market and society opted for).

Fat taxes on food vs. airline fat taxes

Along these lines, ‘fat taxes’ on food, as we discussed here and here, appear to be less discriminatory in nature and therefore stronger in terms of social acceptability. Both ‘fat taxes’ and ‘pay-as-you-weigh’ pricing pursue a similar objective: to decrease weight rate of the population by relying on a market-based mechanism. Yet their modalities of operation differ substantially. While a ‘fat tax’ on food tactfully affects future consumption patterns of a given product, the latter instead penalizes – thus stigmatizing – the actual physical status of an individual.

Given the multifactorial nature of obesity (i.e. we are not necessarily fat because we eat much, but genetics, socio-economics, etc play equally a role), this manifestation of the ‘pay-as-you-weigh’ pricing policy seems per se capable of questioning the normative rationale upon which it is built.

Thinking out of the box

In the meantime, AirCanada developed a policy towards obese flyers that takes a completely different route. Because the airline considers obesity a medical condition, it provides overweight passengers with a free extra seat as long as they present a doctor’s note. Yet Canada is not America when it comes to obesity prevalence:

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Conclusion

Too fat to fly? ‘Pay-as-you weigh’ flight tickets. No, too unfair to work.

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Comments

Katherine Record says:

Social determinants of health unquestionably affect weight – but because of fat and calorie intake versus output – not because of some inherent difference in biology. Moreover, those who we should be concerned about related to social determinants are often not those flying. Paying for your weight is not inherently bad public health policy. It deserves far more in depth analysis than you provide.

Alberto Alemanno says:

Dear Katherine,
Many thanks for your comments.
One of the points I wanted to make in this short post is that a pay-as-you-weigh pricing policy does not do justice to the multifactorial nature of obesity (yes, social determinants – among other factors – affect weight). Of course, as stated above, the introduction of such a scheme deserves to be rigorously investigated both on theoretical and practical grounds.

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