Why don't the forces of free market competition force airlines to abandon baggage fees and the like?

I can't argue with your logic but, at the moment, the market is working in the opposite direction.   It's not just baggage fees but change fees (amongst others) as well. The airlines have been unprofitable for years then, suddenly, this idea of fees appeared and, rather than staying out and competing on having no fees the airlines chose to go for profitability.   Only one US airline has so far refrained and that's Southwest and even they are beginning to make noises about fees. So what would make airlines drop fees?   I think you're right, in a way, and it will take a drop in traffic for someone to try and steal a march by dropping some fees.   But, as soon as they do the market will follow so why bother?  Also worth bearing mind is that if you can make "elite" status in a frequent flyer scheme some, if not all, the fees will vanish.

This is a very interesting question. And I believe there are several reasons to this. 1. Regulation in the aviation sector The aviation sector worldwide is fairly regulated and there are several bodies (FAA in US and DGCA in India etc) responsible for the aviation sector in their respective countries. And one of the the main objectives is to promote fair competition between the airline companies. Example: Suppose, I have a lot of money. I open up an airline company,  purchase a fleet of 10 airplanes, decide on the routes. Then I realize there is just too much competition. But hey, I am a private airline company. I have so many other businesses that I don't really care about the money. The other airlines are charging $100 for a particular route. And, I decide to charge $10. Eventhough, I will be making losses but people would still travel using my airline as I am offering a very good price. The other airline companies would struggle to compete with us and might go out of business. And once they go out of business, I will increase my price and make my company profitable. Would this be fair competition? No. Thus, the aviation bodies exist to ensure that something like this doesn't happen. If one airline company decides to let its passengers take baggage without any charges, then it severely impacts the profitability of the other companies which is detrimental to the aviation industry itself in the long term. 2. Keeping the share holders happy Now, for any airline company, there are 2 major stakeholders whom they need to keep happy. Shareholders - These are the people who have invested in the airline and they would like to be kept happy by ensuring that airline makes sufficient profit. Consumers - they want to travel at the least cost possible Now, you cannot keep both shareholders and consumers extremely happy at the same time. It is definitely not easy to strike a chord between the two and there is a trade off involved when you're trying to keep both of them have faith in you. If you decide not to charge for the baggage, then your company's profitability will surely take a hit and the share holders would get upset. You can argue that you would be flying more passengers and thus make up for the revenue but your inventory turns would also go high and larger your scale of operations, the more difficult it would be to achieve. 3. But don't the airline companies have to keep consumers happy too? Now, of course, the airline baggage fees are frustrating for the consumers but the companies find other ways to keep them happy. Here is an example. You can find a snapshot of a Ryan Air's flight from Eindhoven (Netherlands) to Barcelona (Spain). Flying time: 2 Hours Cost: 19.99 Euros (25.5 USD or 1563 Indian Rupees) I would say, that is damn cheap! In India, the least you can get for a 2 hour  flight would be around 58 Euros (4500 INR) The catch, however, is that they only allow one cabin baggage and if you need to take even a single check-in baggage, you've got to pay for it. I also wrote another answer relating to baggage fees. If you're interested you can read the same below:

Your question contains several sub-questions that have to be answered separately. 1. Is there a legitimate reason for charging fees for baggage? Baggage is extra weight and volume which results in additional costs to the airline, in terms of (a) additional fuel expenditure to carry the extra weight (b) less volume and weight allowance to make revenue out of cargo, on which airlines make a significant amount of revenue. Also the increase in average passenger weight seen all around the world means there is more weight from passengers and less potential cargo weight. There are other reasons for limits on baggage weight and dimensions, such as health and safety of baggage handlers, aircraft weights and balance, conformance to https://en.wikipedia.org/wiki/Unit_load_device and so on. 2. Why does the free market not force the airlines to drop baggage fees? Very simple answer for that: because the baggage represents a real cost to the airline and a reduction in cargo means less costs to the airlines and thus lower fares, and the passengers have used the free market to say that they aren't that worried about them. The free market has determined that the customer prefers to have a small upfront cost and pay later for any extras. That's precisely Ryanair's business model. Like, there is no way that it should cost 100€ to change a name on a ticket, or 15€ to print a boarding pass, or fricking 5€ to check yourself in. Remember the outcry when Ryanair suggested fees for toilet use? If that happened with baggage fees the situation would have been very different. How these fees work is that it's usually one airline that tries it (usually Ryanair), they still sell out their planes, and the others follow one by one once they realise that passengers don't care as long as the initial fare is cheap and the total fare isn't higher. Baggage fees aren't a fare increase (which have been falling for several decades) but a different pricing structure. And if you look at it differently, when you don't need two baggage and instead need only one, the cost of carrying the extra baggage of others is still paid by the airline and inevitably you are subsidising others' extra baggage.

Wall Street Analysts like the bagage fees: http://www.runwaygirlnetwork.com/2014/08/01/jetblue-seeks-to-strike-balance-between-wall-street-and-customers/ Maybe some travellers that travel without bags also like this system? They don't want to subsidize the travellers with bags? Unbundling means that traveller A no longer subsidizes traveller B, why wouldn't traveller A like that? In Europe you sometimes have to pay 2% extra when you want to book a flight with a credit card instead of a debit card. And I think that is good because why should a debit card payer subsidize a credit card payer? Merchants have to pay huge fees to credit card companies, I should pay less when I want to pay with a debit card. edit Jetblue changed its policy, now you have to pay for checkin baggage fees too: http://www.huffingtonpost.com/george-hobica/jetblue-will-charge-for-f_b_6185898.html Carryon bags are still free with Jetblue but maybe that will change too in the future. Carryon bags are not free when you fly with Ryanair and Spirit Airlines unless the carryon is small (personal item).

Question is why would they do that ,we did a analysis for US Airlines .Check this out: Baggage fees charged by US Airlines increased from 0.53 Billion USD to 3.86 Billion USD(728%) from 2007 to 2014. Having said we are working on a solution to help consumers save baggage fees before flying. http://www.baggagemoneysaver.com : We would be coming with a prototype next week!