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"Southwest Airlines sees fivefold jump in revenue from baggage fees, thanks to AirTran"

Tuesday, May 14, 2013

Southwest Airlines sees fivefold jump in revenue from baggage fees, thanks
to AirTran 
The Dallas (TX) Morning News

Southwest Airlines' "Bags Fly Free" slogan and its overall fee strategy have
become sticky issues as the carrier grows and melds with AirTran Airways.

Government statistics released Tuesday show Southwest's revenue from baggage
fees rose nearly fivefold to $144.5 million last year from 2011 - the
biggest jump among the nation's 15 largest airlines.

It's a bit of a reporting quirk and a byproduct of the Dallas-based
carrier's purchase of Florida-based AirTran two years ago. Southwest lets
passengers check two bags for free, but AirTran charges for bags.

While the two airlines still operate separately, they're gradually
integrating systems and staffs. They began reporting such ancillary fees
jointly to the government in the second quarter of 2012.

"As AirTran is integrated more into the company, we're seeing more'' fee
revenue, said Brad Hawkins, a spokesman for Southwest.

When the two airlines are completely integrated by the end of 2014,
AirTran's baggage fees - and some other AirTran fees - will disappear.

Overall, U.S. airlines collected a record $6 billion in baggage and
reservation change fees in 2012, up 5.2 percent from 2011, according to data
released Tuesday by the U.S. Bureau of Transportation Statistics. Baggage
fees alone for the 15 largest airlines rose 3.8 percent to $3.5 billion.

Fees have risen steadily since 2008, when airlines began charging passengers
for their first checked bag. Passengers typically pay $25 each way to check
the first bag, with higher fees per bag thereafter.

Baggage and other fees helped the nation's 10 largest airlines post a
combined net profit of $201 million last year, compared with a net loss of
$500,000 in 2011.

Fort Worth-based American Airlines' revenue from bag fees rose 25 percent to
$557.4 million last year from 2011. Delta Air Lines had the most bag fee
revenue - $865.8 million, up 32 percent.

Delta also was No. 1 in reservation cancellation and change fees, collecting
with $778.4 million. Those fees at American rose 39 percent to $517.7

Southwest does not charge passengers to change tickets, but it reported
$32.5 million in reservation cancellation and change fees for 2012 because
AirTran charges it. That AirTran fee is scheduled to disappear at the end of

Southwest's fees took center stage last month during a conference call with
analysts, who grilled chief executive Gary Kelly about new advertisements
that don't mention the airline's Bags Fly Free policy as in the past.
Analysts wondered if the ads signaled a shift toward charging more fees or
of fees playing a larger role in driving revenue.

The intent of the ads, Kelly said, was to promote an array of Southwest
features instead of focusing on one.

"There's just a lot more to Southwest Airlines than not charging for bags,"
he said. "There's no intent here to change the positioning of Southwest
Airlines' brand with this ad campaign."

Customers like the luggage policy so much that Kelly estimated the airline
would lose nearly $1 billion a year in revenue if it began charging for
bags. Southwest posted a net profit of $431.3 million, and revenue rose
nearly 4 percent to $24.9 billion in 2012.

That higher revenue stems, in part, from new service, adding seats to
planes, flying fuller planes and launching revenue streams.

Southwest, for example, is selling premium boarding positions at airport
gates and raised its EarlyBird Check-In charge from $10 to $12.50.

And Kelly left the door open for bag fees. "I don't want us to be pinned
down into perpetuity on what we might or might not do," he said. "There is
no change that is imminent."

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