How the airlines handle the ‘mishandled’ luggage problem

Jaime Sigal’s suitcase felt a little light when he picked it up from the conveyor belt in Sao Paolo, Brazil, so he gave the heavy-duty ballistic nylon bag a careful once-over.

Sure enough, the zipper appeared to have been forced open. Sigal, who works for an export management company in Miami, made a beeline for the LAN Airlines counter. Three items were missing from his luggage: a blazer, a leather jacket and boots. He’d paid a total of $1,700 for the items last year.

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Every day, the same scenario repeats itself in airports everywhere. Luggage is lost or pilfered, and airlines do their best — or not — to find or replace it.

Last year, there were more than 2 million reports of mishandled luggage among domestic airlines, according to the Transportation Department. That’s down slightly from the year before, when roughly 2.1 million bags went astray. (While the government doesn’t distinguish among lost, damaged, delayed and pilfered baggage — referring to it all as simply “mishandled” — airline passengers certainly do.)

The biggest offender? Among the major non-regional carriers, American Airlines had the worst record, with 3.82 reports per 1,000 passengers. Interestingly, American was the first of the big carriers to institute a fee for all checked bags, back in 2008. The second- and third-most loss-prone were Delta Air Lines and Southwest Airlines.

The problem isn’t just lost luggage; it’s what happens next. The rules vary, depending on where you lost the bag and how long it takes to recover it.

Consider what happened to Sigal. After he filed a claim, LAN offered to pay him either $300 or cut him a $600 flight voucher. He refused both. “I feel that while in the custody of the airline, the suitcase was opened and the items were stolen,” he told me. “The reimbursement is not even close to the replacement cost of the items.”

Under the Montreal Convention, an international treaty that governs compensation for the victims of air disasters, Sigal was entitled to a maximum of about $1,800. (The amount fluctuates, because it’s based on a combination of worldwide currencies.)

I suggested that Sigal mention to LAN that its offer came nowhere near to what the Montreal Convention calls for. When he did, LAN asked for receipts for the stolen items, which he sent. The airline offered him about $1,800 in flight vouchers, which he accepted.

There isn’t always a happy ending, though. Earlier this year, reader Leonard Henderson contacted me after his ski gear got lost on a flight to Telluride, Colo. He had to buy new clothes, for which US Airways promised to reimburse him. But when the time came for the airline to pay up, it balked. Henderson had paid $2,500 for new gear, but the airline covered only $800.

“The airline will not give me an explanation of how they came up with the reimbursement figure,” he told me. “I feel like the tiny little guy versus the corporate giant.”

Part of the problem is that Henderson’s luggage was eventually recovered. According to federal law, the airline is liable for a minimum of $3,300 per customer if lost bags are never found.

But when luggage is delayed, the rules say that an airline must reimburse passengers for “reasonable” expenses caused by the delay, such as tuxedo rental for a wedding or purchase of underwear and toiletries, or a bathing suit at a beach resort.

US Airways’ policy is more noncommittal. “We’ll consider reimbursement for reasonable items such as toiletries while you’re waiting for us to return your property,” it says on its Web site.

Effective Aug. 23, new rules will require airlines to refund any fee for checked luggage if the bag is lost. However, the current requirements for compensating passengers for reasonable expenses won’t change, nor will the maximum compensation for lost luggage.

How do airlines persuade us to accept less? They ask for original receipts that they know we don’t have. They claim that they don’t cover fragile items, such as electronics and collectibles. They take forever to process our claims, dragging things out for so long that we forget what we lost.

For the past three years, checked luggage has been a huge profitmaker for air carriers. The industry collected more than $3 billion in baggage fees in 2010, compared with just $464 million in 2007, the year before the legacy airlines adopted a fee for the first checked bag. And for three years, the industry has essentially had it both ways — collecting our money and then losing our luggage without any meaningful consequences.

But that’s changing. Anticipating the new rule that will force airlines to reimburse baggage fees when they lose a piece of checked luggage, carriers have become more cautious about how they treat your property. The DOT last year fined Delta $100,000 for capping expense reimbursements on lost luggage. Perhaps not coincidentally, Delta recently introduced a new tracking system for bags that lets you follow your luggage online and presumably will ensure that fewer bags will be “misplaced.”

Wouldn’t it be something if the government also set minimum compensation amounts for passengers whose luggage just went astray for a day or two? I wonder how it would affect the mishandled baggage tally — and how it would move the needle on the billions of dollars in luggage fees the airlines collect every year.

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