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  • Is Southwest Winning On Bag Fees?
    Posted by Andrew Compart 6:15 PM on Feb 02, 2010

    As I mentioned in this earlier column, in which I warned that carriers should not get complacent about the impact of their fees, Southwest has taken a beating over the past year or so from Wall Street stock analysts who could not understand why Southwest would not join other carriers in charging for the first and second checked bag. That's because those carriers were reporting hundreds of millions of dollars in revenue from their checked bag fees, while Southwest was making a less tangible argument: that it was winning or would win new customers by not charging the fees.

    Analysts were not convinced, as shown by their questions in this transcript of its earnings call last April. But with Southwest doing far better than other U.S. carriers on unit revenue in recent months, with significant year-over-year increases (Aviation Daily subscriber-only story), some analysts appear to be changing their minds. In a research note Jan. 21, Raymond James analyst Jim Parker said Southwest's 3% increase in fourth quarter traffic in spite of an 8% cut in capacity was "likely due, in part, to Southwest's Bags Fly Free" policy, and contributed to its big outperformance of the industry on unit revenue with a 7.4% gain.

    Even more startling was this: during AirTran's earnings call, JP Morgan analyst Jamie Baker asked AirTran if it might drop its bag fee on routes where it competes with Southwest. You can read the entire exchange here, but here's the question from Baker, with references to the RASM or unit revenue gap:

    "I’m sure you’re aware of disconnect between Southwest RASM trends and you’re own at least in the early months of this year. I’m wondering if it would make sense to match their bag policies, where you overlap such as Baltimore. It seems that the industry is feeding an ever growing amount of RASM to Southwest."

    There is no indication, however, that Southwest's results are convincing any airlines to change their policies. They have all insisted they have not seen any evidence of the market share shift Southwest refers to. That, essentially, is the response from Kevin Healy, AirTran's senior vice president, marketing and planning, to Baker's question, and to my questions about it in an interview I had with him after the call.

    "I think it's oversimplified to say that they've gained as a result of not having a bag fee," Healy told me, adding that he has been unable to find any data showing that AirTran is worse off in markets where it competes with Southwest because of its bag fee.

    "They can do what they do and we'll do what we do," he added.

    AirTran, on the other hand, has not matched the increase in checked bag fees at most U.S. carriers to a maximum of $25 for the first bag and $35 for the second. At least not yet.

    Tags: tw99, bags, fees, Southwest, AirTran

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