One Airline That Stubbornly Refuses to Pile on the Fees (For Now)

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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).

(MORE: End of New Airline Fees? Nation’s Most Fee-Crazy Airline Is Tapped Out of Ideas)

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.

(MORE: Oof! Airline Fees Rise Yet Again: At Least $200 to Change a Flight)

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.

(MORE: Is Airline-Style Variable Pricing Coming to Theme Parks?)

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.

6 comments
SamLu
SamLu

ha

I was nailed a $75 overweight luggage fee even though my second checked bag was underweight by that amount.  There was no leniency about it.  So Southwest isn't quite the angel most people make it out to be.  But still heads and shoulders above Spirit ! (actually more like ankles above Spirit)

AirFareIQ
AirFareIQ

We can all thank Southwest for keeping fares "in line", even if they are not even really a "low fare" airline anymore.  But they keep the competition on their toes, fare-wise, and make lots of hidden city bargains available for last-minute travelers on other airlines.  AirFareIQ.com has a nice database of these loophole fares for those so inclined to thumb their noses at the legacy carriers.

byrontx
byrontx

I hate gotchas and when it happens to me I make every effort to serve it back cold. Don't surprise me or nibble on me with little fees. I fly Southwest.

FreddyBright1
FreddyBright1

Vivek Sood mentioned in his book The 5-Star Business Networks that innovation is important for business and the different strategies the company will present. I believe that Southwest Airlines is doing a strategy. I just hope it is for the good. Of course people would choose a cheaper one so it would be beneficial to them. I just hope that their revenues would not suffer

HazeAndDrizzle
HazeAndDrizzle

American capitalism is eating its own guts. While airlines merge and concentrate economic power to please hedge fund managers, the destruction of meaningful government control is paying off in consumer abuse with nobody around to stand up to it.

dorgan
dorgan

I fly Southwest exclusively if they have flights to my destination because A) even if their ticket costs around the same as a ticket plus baggage fees with another airline I don't feel like they've urinated on my leg and told me it's raining, B) have had horrid experiences with in flight and counter personnel at United and Delta, in appx 10 years of flying have NEVER seen a Southwest employee do anything but consistently go out of their way to fix any issue a customer had and C) Kind of like the corny jokes and atmosphere presented by in flight personnel on every Southwest flight I've flown on. I've seen a steward hold a fussy baby to allow a young mother to go to the bathroom, I've seen a stewardess defuse a hotheaded customer with humor that rather than pissing him off more got him in a good mood too. Can't beat them in my opinion.