Management Team Decision, Chapter 1

Baggage Claims—Is RFID the Ticket?

Last month, you and your management team from Hartsfield-Jackson Atlanta International Airport began discussing using radio-frequency identification (RFID) tags in the airport’s baggage-handling operations. Recent reports on lost luggage have caused more than a ripple of concern, with roughly one in every 150 U.S. passengers losing a bag in any given year. U.S. airlines spent an estimated $400 million to replace mishandled luggage in a recent year, yet passengers are regularly incensed that the airlines give only partial reimbursements for lost bags and belongings. The cost of lost luggage, however, is not just the $400 million in reimbursements. There’s the time and expense of staffing large customer-service departments to take complaints, process claims, track down and identify missing baggage, and deliver found bags to either the owner’s travel destination or home. Multiple deliveries are often made, as the bag arrives at the passenger’s destination after he or she has left for another destination or returned home. The International Air Transport Association estimates that airlines worldwide could save $760 million a year by reducing lost luggage.

Your team would love to reduce the costs associated with lost luggage at Hartsfield-Jackson (ATL), which consistently wins the title of world’s busiest passenger airport. Nearly 6.5 million travelers pass through the airport in a given month and bring about 75 metric tons of luggage with them. That’s more than the either the monthly amount of mail or commercial freight (think FedEx and UPS) that passes through the airport’s facilities!

Thirty-one airlines take off and land at ATL, but Delta accounts for over 58 percent of passenger volume. As (bad) luck would have it, Delta has a dismal ranking for lost luggage, reporting 6.8 mishandled bags per 1,000, second only to US Airways’ 7.7 losses per 1,000. Company-wide, Delta handles 1.3 bags per passenger, and there’s no reason to think this number is any lower in Atlanta, its biggest hub. That means Delta alone puts over 160,000 bags into the ATL system each day!

To manage this tremendous flow of personal belongings, ATL uses the bar-coding system in use at the majority of U.S. airports. Adhesive paper tags are very economical at 4 cents each, but they also rip, smudge, get misread, or get torn off completely. Scanners even have trouble with twisted tags. Baggage sorting with bar-coded tags is only 80 to 90 percent accurate. And once they’re printed, that’s it. If a passenger’s destination changes due to, say, inclement weather, flight cancellations, or being rerouted, the bar-code label can’t change to reflect the new itinerary.

Armed with all this, well, baggage, your team went on a trip to Las Vegas’s McCarran International Airport, which has been using radio-frequency identification tags to manage its bag handling. McCarran is the fifth-busiest airport in the United States, and it handles more than 70,000 outbound bags per day. Using bar-code readers, as many as 7,000 bags per day were not read properly and tossed into an “unknown” pile to be hand sorted. There was also the headache of lost luggage for passengers on quick three- and four-day excursions to consider. In the end, the airport decided to invest in a system based on RFID tags. Tags costs 21 cents apiece, or five times the cost of a bar-code tag, but the accuracy of the RFID system has cut the number of hand-sorted bags by 90 percent, and the tags can be rewritten electronically mid-travel if itineraries change. The RFID system has enabled the airport to let inbound passengers on long flights check their bags all the way to their casino or hotel, so that their luggage is waiting for them when they arrive.

What to do? ATL is already in the middle of a $5.4 billion campaign to improve facilities. Management does a great job managing the finances of the airport, and Hartsfield Jackson is considered a good risk (meaning a safe bet) for lenders. The hardware required to start using RFID is cheaper than maintaining the hardware that manages the system of traditional bar-code tags, but the difference in the cost of the tags is substantial if decreasing. And who’s going to foot the bill? Should the airlines, which are nearly all suffering financially, be expected to pay for the program that will ultimately benefit them as well? Delta already stopped paying its $3.4 million annual rent to the airport as part of its bankruptcy restructuring. If they don’t pay for the hardware required to read the tags, should airlines at least pay for the tags themselves?

Maybe you need to take another trip, this time to Furth, Germany, where Siemens, a provider of industrial software, has built a mock airport to demonstrate how automated technology can help airports improve efficiencies in nearly every aspect of their organization. Siemens’s automated luggage belts equipped with RFID readers can move at up to 30 feet per second, which means that passengers wouldn’t have to wait hours for their bags to show up at the carousel, as they often do now. Even though the people at McCarran were helpful, their airport has less than half the traffic of Hartsfield-Jackson. Perhaps consulting with the folks at Siemens will help you better frame the issues for your massive operations. Or maybe you’d be better off visiting Denver International Airport, which is known for its notoriously flawed—and inefficient—automated baggage handling system.

Form a team of four or five students to act as the management team of Hartsfield-Jackson International Airport to determine if the tradeoffs of implementing RFID are worth the costs.
Sources: S. McCartney, “A New Way to Prevent Lost Luggage,” Wall Street Journal, 27 February 2007, D1; S. McCartney, “Why Airlines Keep Losing Your Luggage,” Wall Street Journal, 16 January 2007, D1; S. McCartney, “Travelers Blast Airlines for Lost Bags,” Wall Street Journal, 16 January 2007, online; J. Ogando, “It’s the Luggage that Flies at Siemens’ Mock Airport,” Design News, 8 January 2007, 30; R. Grantham, “Heightened Security Leads to 40% Increase in Checked Baggage,” Atlanta Journal-Constitution, 18 August 2006, online; K. Tagami, “Atlanta Airport’s Finances Rated High,” Atlanta Journal-Constitution, 16 July 2004, online; K. Tagami, “Airline Bankruptcies Blow Hole in Atlanta Airport Budget as Hangar Leases Flag,” Atlanta Journal-Constitution, 26 January 2006, online; http://www.atlanta-airport.com/sublevels/airport_info/pdfs/Traffic/200701.pdf.
Questions

1. Implementing RFID is a complex situation that draws on many managerial roles. Describe the ways that the management team from Hartsfield-Jackson will fulfill Mintzberg’s managerial roles and subroles (see Exhibit 1.3) as it thinks through the decision.