Southwest's Profits Dive: Could Checked Baggage Fees Be Coming?

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Southwest Airlines baggage
AP
For years, Southwest Airlines (LUV) has taken pride in being the only U.S. airline left that lets travelers check two bags for free. But in the wake of Thursday's first-quarter earnings report, in which the airline reported a 40% dip in profits and cited lower-than-expected passenger revenue for March, we're wondering if it might be reconsidering that stance.

The idea that Southwest would abandon its long-standing bag-fee policy isn't as crazy as it might sound. While Southwest and JetBlue (JBLU) have been the only domestic airlines not to jump unreservedly onto the baggage-fee bandwagon, Southwest has indicated in recent months that it could be wavering. In January, for instance, CEO Gary Kelly told CNBC that there were no plans to add fees in 2013, but added that he would "never say never."

"The customers will tell us whether they would prefer to have extra fees or whether they would prefer to have everything bundled," he told the network.

And with Southwest's profits starting to lag, it stands to reason that it may want to re-examine its business model. Fees have been a huge profit engine for the industry, with airlines making $3.4 billion on checked bags alone in 2011. If Southwest wanted to boost profits, charging for checked bags would be an obvious way to steer some extra cash in the coffers.

Of course, doing so would also run the risk of alienating its customers, many of whom have been attracted by the consumer-friendly no-fee policy. As such, industry analysts suspect that the airline will try to find other ways to gin up revenue.


"Southwest may explore instituting some 'fees,' such as fees to change tickets, which could help it generate revenue," says Henry Harteveldt, an airline industry analyst at Hudson Crossing. "The airline may view these types of fees as more acceptable to consumers, and less damaging to its brand and reputation, than charging to check bags."

James Shillinglaw, editor-in-chief of industry trade publication Travel Pulse, agrees that such a move would do real damage to Southwest's brand.

"The dip in profits could lead Southwest to start charging for first bags," he says. "But the airline has spent so much money on marketing the fact that they don't charge for bags that I doubt they would do so at this point."

Still, it's worth noting that Southwest's marketing has begun to shift its emphasis away from the no-fee policy. The airline's latest ad campaign drops the "bags fly free" message, and shies away from attacking competitors for charging baggage fees. That, says the Los Angeles Times, suggests that Southwest could be changing its branding in preparation for eventually following its major domestic rivals. (JetBlue gives passengers one free checked bag.)

Southwest insists that isn't the case, with a spokesperson telling the Times, "We don't have a plan to charge for bags."

Maybe not for now. But we're guessing the airline is giving it some serious thought.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.



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jrp1947

try looking at customer service, number of passengers flown each year, advertising, and all the other non-baggage issues before assuming a charge on checked baggage is going to solve your problems. Maybe more and more passengers are finding other transportation because of other issues and charging for checked on baggage might just increase the profit loss problem.

April 29 2013 at 4:49 PM Report abuse rate up rate down Reply
herb

SOUTHWEST aIR IS GETTING WHAT THEY DESERVE FOR BEING SUCH A LOUSY AIRLINE.
HERBLITT@QAOL.COM

April 29 2013 at 3:40 PM Report abuse rate up rate down Reply
bayoubevel

Used to be reasonable to fly SWA last minute.. Not anymore..and could we get assigned seating already this print the boarding pass 24 hours in advance just sucks!! How about pick your seat for $10 istead of this get in line 10 minutes faster scheme??

April 29 2013 at 1:27 PM Report abuse rate up rate down Reply
gmsexton

their profits dipped because of how they hedge fuel on the spot market.... when fuel prices drop as dramatically as they just did last quarter... they get hurt.. if the opposite were true.. fuel rose.. they would have had above expected profits.. they conveniently leave that little bit out of the article... when they have 3 or 4 quarters in a row that are bad.. then we may see some changes..... they aren't stupid...

April 29 2013 at 1:21 PM Report abuse rate up rate down Reply
killkubota

Southwest has been and remains a free rider. They use all the infrastructure bought and paid for by the major carriers for fees that don't even come close to paying for the gates they use from other airlines. Also, there entre route structure is based on major carriers and their routes. They made money by poaching on other airlines investment and keeping their overhead down as a result. But, as they grow, the ability to poach become less and their overhead costs are forced to rise. Now, we see the result is this change in lower profits. I don't like free riders and I am no fan of Southwest, must be because my spouse works for one of those major carriers that has had to subsidize these guys to maintain their own infastructure.

April 29 2013 at 12:19 PM Report abuse rate up rate down Reply
onceagain1011

I have been a loyal Southwest customer for years. However, their fares are priced just about the same as other airlines now. So we just don't fly for vacations like we used to. The industry needs to realize that people have limited funds for vacation and increasing fares and adding fees is not conducive to bringing in business.

April 29 2013 at 12:05 PM Report abuse rate up rate down Reply
ekmattar

I love Southwest. It is my favorite domestic airline and I would hate to see them charge fees for bags. It just means more people will be dragging them on board and having to find overhead space. If their profits are down, they need to see why not come up with an idea of charging for bags.

April 29 2013 at 11:25 AM Report abuse +1 rate up rate down Reply
doncinnh

SW is the best airline out there - Good Service - Friendly staff. My guess is the drop is profits is the aquisistion of AirTran Airways. I flew them 3 times in the past month and all planes were full

April 29 2013 at 10:36 AM Report abuse rate up rate down Reply
aaflyboy1

If Southwest decides to charge for bags, PEOPLE WILL CONTINUE TO FLT SOUTHWEST!
The truth is, Passengers will not have a choice IF they want to fly.
They can decide to stay home,take the train, or the bus.
Southwest is unique. A lot of people fly Southwest not because they are cheap. Because they are NOT!
Southwest offers many point to point flights and can command higher fares.
TO BAD OTHER AIRLINE MANAGEMENT DOES NOT UNDERSTAND THIS!
Passengers do not like making connections.
SOUTHWEST IS A GREAT AIRLINE WITH A GREAT PRODUCT!
IF They decide to charge for bags, (THEY SHOULD, IN ORDER TO MAKE MONEY! DO HEALTHCARE COMPANIES,DRUG COMPANIES,FOOD COMPANIES,INSURANCE COMPANIES GIVE US A BREAK?? HELL NO! GREED AT ITS FINEST!)

April 29 2013 at 10:34 AM Report abuse rate up rate down Reply
1 reply to aaflyboy1's comment
Kent

I think a lot of people fly Southwest, when they just as easily could fly American, United, or Delta, so long as you're flying to a major city. Chicago, Southwest flies to just about every major city out of Midway. I know people who say that Midway is a bit farther than O'Hare in terms of drive time, but Southwest's lack of fees makes Southwest cheaper.

Start charging for bags, and some traffic will shift to American and United.

April 29 2013 at 10:50 AM Report abuse +1 rate up rate down Reply
mahalo5000

Somewhere along the line, Southwest became the most expensive airline to fly, which, I suspect, turned a lot of people off.....including myself.

Combine that with Southwest-related expectations of having to take connecting flights, and, uncertain seating........is it any wonder that Southwest's reputation (and revenue) has taken a hit?

I go Jet Blue now.

April 29 2013 at 9:31 AM Report abuse +1 rate up rate down Reply