This case tests breakeven analysis and strategic trade-off thinking. The core insight is that while baggage fees generate $900K daily in incremental revenue, they trigger customer attrition costing $1.35M daily, creating a $450K daily loss at breakeven. Beyond the numbers, the case forces consideration of brand equity and competitive positioning—a niche advantage (free bags) conflicts with industry practice (charging for bags).
BudgetAir is a low-cost national airline based in Philadelphia, PA. Being from the “city of brotherly love”, the airline is focused on customer service and satisfaction. In fact, the airline consistently receives top customer satisfaction scores amongst all airlines. As part of their customer focused strategy, they are know for their marketing slogan, “Bags Fly Free”.
As the airline expands its routes and offers additional cross country flights, BudgetAir is considering charging for bags. Is this a good idea?