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  • A Tale Of Two Airlines On Bag Fees
    Posted by Andrew Compart 9:56 PM on Apr 21, 2009

    Delta announced April 21 that it will add a new fee of $50 for the second checked bag for most coach customers on international flights. This is another U.S. airline fee milestone, because most of the first and second checked bag fees have applied solely to domestic services (where it applies elsewhere, its limited to services such as Spirit's services to the Caribbean and Latin America).

    Delta gave the new checked bag fee a one-line mention in the press release on its first quarter results (a $794 million loss). So for details beyond how much annual revenue it is expected to generate (more than $100 million) I had to go to an airline spokesman and the policy posted many hours later on the airline's website.

    As with the domestic fees, the international one will not apply to coach customers paying full fare, active-duty military traveling on order or frequent flyer elite-level members. The spokesman explained to me how this would work with the airline's alliance partners: The fee will apply to any Delta booking, whether on its own aircraft or with its code placed on an alliance partner's flight. It will not apply, however, to passengers flying on a Delta aircraft on an alliance partner's code. These international complications are why, as discussed in this podcast interview on an earlier blog post, unbundling fares internationally gets more complicated.

    On the other end of the fee spectrum, Southwest CEO Gary Kelly last week found himself forced to repeatedly defend his airline's decision not to add first and second checked bag fees.  Southwest is the only U.S. airline holdout on the second checked bag fee, and one of the few on the first bag (see chart). Some Wall Street analysts want Southwest to add the fees, arguing it is foregoing easy revenue.

    Two analysts pressed this point in the airline's first quarter earnings conference call April 16. Kelly argued that not having the fees, and promoting that fact in its "No Hidden Fees" campaign, has helped sell more tickets, boosting revenue more than the fees would. Winning just one additional customer, he added, is equivalent to collecting 10 or 12 bag fees. The airline's revenue performance relative to its peers bolsters that argument, he said, as do internal surveys showing customer awareness of its bag fee policy is now high. He compared the airline's decision to shun the fees as equivalent to its long-standing decision not to charge higher walk-up fares .

    You can read the full exchange with the analysts here. (Search the transcript for "Greene" to get to the first of the exchanges quickly.)

    Later, during the question-and-answer time for reporters a reporter joked that, he, too, was going to ask about the fees. He quickly added, "not really," but Kelly responded anyway: "We still have an answer," he said, but noted: "Only our customers seem to like the answer."

    Why is that? My view is that it's because airlines can easily show how much they have made from their new bag fees. They boast about it in their earnings reports. It is impossible, however, for an airline to prove how many if any customers booked the airline because it does not charge a bag fee. Analysts like hard numbers.

    Kelly sounds pretty insistent, and I have no reason to doubt the fervency of his beliefs. But there's more. As my colleague Adrian Schofield pointed out to me--because it went right by me when I listened to the call--the Southwest call also included this interesting little exchange about the fees (as quoted from the transcript  of the call). The Laura that Kelly is referring to here is Southwest CFO Laura Wright.

    "Laura poked me when you were asking your question. We will have a technology enabled soon that will make it easier for us to entertain charging a bag fee, by the way. I don’t want you to think that it’s something that we can’t do, at least in a reasonable amount of time. I will admit to you it is not on our agenda."

    Certainly does not sound like a total closing of the door on bag fees, does it?




    Tags: tw99, Delta, Southwest, fees

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