Southwest Airlines’ CEO, Gary Kelly, claims they have managed to shift $1billion in revenue away from the rest of the industry as a result of their bag fee policy, often from leisure travelers.  Their Q2 results show revenue up by $1billion compared to the previous year and while not all of that is from a shift in choice by customers, that’s a powerful number. 

It does prove that people are paying attention to those fees and I think over time people will become more and more sophisticated in making a choice based on those fees.  It really offers SWA three advantages.  First, it makes them more competitive against legacy carriers in many instances.  Second, SWA doesn’t incur the ill will of customers by charging those fees.  Third, it is getting people to try Southwest and discover that it really isn’t the “bus” it used to be when it comes to air travel.

Even my own mother had certain long standing prejudices against them based on experiences more than two decades old.  Recently, she’s tried them again and discovered that not only is the service product pleasant, Southwest has some of the most generous economy seating available today.  That discovery has found her searching out SWA fares to destinations more and more instead of her general choice (Delta Airlines.)  How many other people are making that discovery and changing buying habits?

Yes, people remain angry over these charges but they’re also becoming smarter about their choices and that doesn’t bode well for legacy airlines.

Yes, Southwest may be capturing more of the least profitable passengers to fill their aircraft.  In fact, one look at Southwest’s load factors tells us they’re doing just that.  Given a choice between retaining a business class traveler and a leisure traveler, most legacy airlines are going to try to preserve the former.  However, when their load factors begin to drop and SWA’s doesn’t, there will be yet another new signal for these carriers that the bag fees may be doing more long term damage than is worth the near term gain.

Filed under: Airline News by ajax
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