Last Tuesday, the 26th, the Chamber of Deputies approved the Provisional Measure (MP 1089/21) that reformulates the legislation on civil aviation in Brazil. Despite containing some positive aspects in the way of reducing excessive regulation in the sector, this MP also contains a device that goes against the grain of economic logic and international practice.
I am referring, more precisely, to the amendment by deputy Perpétua Almeida (PC do B/AC), which includes in the Consumer Protection Code a provision prohibiting airlines from charging any type of fee, on national flights, for the dispatch of up to 23 kg, and on international flights, by checking baggage up to 30 kg.
It is worth remembering that the possibility of charging separately for checked baggage is something recent in Brazil, despite being common for a long time in the vast majority of countries. More precisely, this decision was made here in 2019. At that time, I even wrote about it.
I cannot say that the proposal of the deputy from the PC do B, which was approved by several deputies, carries a “Q” of cheap populism or is just the result of a totally misunderstanding about the economy and, particularly, about the sector.
But the fact is that this decision, instead of reducing prices for consumers, as suggested by the noble deputy, will certainly raise, on average, the price of air tickets for all passengers. Basically, it’s more of a “fool me I like it” decision. I explain why.
There are people who do not travel with checked baggage and others who are willing to travel unchecked, if they have to pay for this service. In essence, the airlines’ pricing model seeks to capture this fact and, of course, maximize profit from it.
By dividing the amount paid in two – passenger transport and luggage transport – airlines give the option for some passengers to pay less than others and “encourage” people to carry what is strictly necessary on their trips.
Note that for those who want to carry more luggage, there is always the possibility of acquiring this “right”, including additional bags. It is worth remembering that the transport of luggage implies a cost for the company. More weight requires the use of more fuel.
At the very least, the use of more space in the plane’s hold implies an opportunity cost for companies, since they will no longer carry more cargo and monetize their flight in a way other than passenger transport. And this point is central, as they will eventually compensate for this additional cost by charging more for airfare.
In this sense, what the prohibition of charging for checked baggage does is to create a model of “tie sale” in the airline sector, forcing companies to charge for the sum of the two services (passenger transport plus baggage).
Obviously, as there is no free lunch, they will reposition their price level upwards for all passengers, even because prices are free in this market (as, in fact, they should be).
Basically, what the proposal approved in the Chamber of Deputies does is to create a cross-subsidy between passengers, and even those who would be willing to give up checking baggage are obliged to pay for the dispatch of other passengers.
In other words, the new directive, contrary to what happens in the rest of the world, will create a model that will imply a loss of efficiency, associated with the impossibility of discriminating prices between passengers, in addition to reducing the possibility of making the flight profitable through the transport of passengers. charge.
The fact is that this discussion seems to have been contaminated by price increases in the sector, which have nothing to do with the two-part pricing model (passenger and baggage). As I have been insisting in this column, prices in potentially competitive markets fluctuate according to supply and demand movements.
And in the case of the airline sector, these two vectors have been moving towards upward pressure on prices. On the supply side, constant increases in fuel prices, the instability of the dollar and inflation itself have put pressure on companies’ costs; not to mention the restriction on the offer of flights that is still felt, even with the end of the pandemic.
On the demand side, what is observed is a strong resumption of demand for air travel by Brazilians. In February, for example, passenger demand and flight supply showed growth, respectively, of 367% and 127%. For no other reason, prices have risen substantially in recent months.
In this scenario, we can only hope that the Senate has more discernment than the Chamber and is able to analyze the issue of charging for checked baggage carefully, separating the chaff (a two-part billing model in air transport) from the wheat ( price level fluctuations associated with supply and demand variables).