Most airlines view fees for baggage and ticket changes as easy, highly lucrative revenue streams. Southwest Airlines views them quite differently: If it added baggage fees on par with other carriers, Southwest says it would lose roughly $1 billion.
When United Airlines increased ticket change fees to $200 (up from $150), the assumption was that competitors would follow suit. Well, airlines are just so predictable. To almost no one’s surprise, American, US Airways, and Delta are now also charging a $200 fee to any passenger hoping to change flight plans within the U.S. (International fees are higher.)
In other airline fee news, Denver-based Frontier Airlines just tweaked its fee structure. Starting on July 1, passengers traveling on the cheapest tickets will have to pay $1.99 and up for in-flight beverages, while certain customers who are members of the airline’s loyalty program and/or who have booked pricier flights will continue to get non-alcoholic drinks for free. More confusingly, very soon, some Frontier passengers will have to pay $25 to $100 for the privilege of bringing a carry-on bag onto the plane. As the Denver Post reported, only customers who book Frontier flights through third-party sites such as Expedia and Travelocity are subject to the carry-on baggage fee. The exact amount a passenger is charged will be determined by how and when the customer checks in for the flight.
The purpose of Frontier’s new carry-on fee is obviously to entice passengers to book tickets directly with the airline’s website—do so and a carry-on is allowed for free. Frontier is trying to get more revenues upfront (by not passing along a portion of sales to a middleman booking site), and if that’s not possible, to collect more money per passenger later on (from drinks and checked baggage fees).
For that matter, Frontier’s unique fare structure also forces customers to consider whether they’d prefer to pay now or pay later. Passengers select among four kinds of tickets, and while the cheapest fares require fees for checked baggage, advanced seating assignments, and itinerary changes, the priciest fares include all of these services at no extra charge. In late 2012, American Airlines rolled out what it called ticket “enhancements” that, similar to the Frontier model, bundled extra services—checked bag, priority boarding, one free change fee—for an additional upfront fee at the time of booking.
Airline fees are nothing new, of course. Travelers have been glum spectators during what has been a decades-long parade of new fees. Fees have been added in so many varied and creative ways over the years that Spirit Airlines, by far the country’s most fee-crazed carrier, announced not long ago that it was tapped out of ideas for coming up with new fees.
Throughout the fee parade, Southwest Airlines has been the highest-profile holdout, allowing free ticket changes and two free checked bags per passenger to this day. But as more fees are added by other airlines, and more fees in general become ingrained in the business model, it increasingly seems inevitable that Southwest will relent and mimic the industry standard by tacking on fees.
Indeed, there have been plenty of signs lately giving the impression Southwest isn’t all that different than the other airline out there. Southwest has added some fees for services like guaranteed early boarding, and it began requiring passengers to cancel flights or risk losing their fare if they don’t show up at the airport. A new ad campaign is spreading the implicit message that Southwest is not just about cheap flights anymore, and wouldn’t you know it: Higher fares are being credited as a prime reason Southwest posted solid profits in the first quarter of 2013.
Southwest has also been in the news lately for what seems like very typical airline behavior: cutting hundreds of jobs at a major airport and failing to respond to customer complaints, resulting in a fine of $150,000 assessed by the Department of Transportation.
Even so, Southwest CEO Gary Kelly said in a recent conference call that the airline is not going to be piling on the fees in the way that most carriers are. And the reason why has nothing to do with Southwest making a stand or feeling that fees represent some kind of unethical money grab; it’s a purely business-driven decision. “I don’t think ancillary revenues,”—money derived from fees outside the basic price of flights—”in today’s environment are the answer to hitting our earnings target,” Kelly explained, according to the trade publication Travel Weekly.
In fact, Kelly said that adding the kinds of baggage fees charged by most airlines would wind up costing Southwest an estimated $1 billion—in the form of customers who would suddenly decide they no longer want to fly on Southwest.
The two-bags free policy clearly sets Southwest apart from the pack. It’s a reason why some travelers choose to fly Southwest over a competitor, so it’s in the business interest of Southwest to maintain the policy. At least this is the way Southwest views the situation right now. [UPDATE: According to the most recent report from the Associated Press, Southwest’s per-seat revenues declined in April, indicating that the airline has been having a harder time selling high-priced tickets. When revenues decline in one area, a company will naturally try to make up the difference in another sphere — such as fees.]
Kelly admitted that things could change. At some point, it could no longer make business sense for Southwest to keep its free-bags policies. “For all we know, customers will say three years from we want you to separate out bag fees,” he said.