One of the most compelling arguments against excessive luggage fees is that they were actually hurting the airlines’ bottom line — that by adding these extras, travelers were turning to carriers like Southwest and JetBlue, which don’t charge for the first checked bag.
But it turns out that’s not true.
Airline analyst Robert Herbst, who runs the site Airlinefinancials.com, reviewed the data and found baggage fees haven’t hurt legacy airlines. In fact, Southwest may be hurting itself by not charging more fees.
“Southwest has attempted to use their no-fee policy in media advertisement to entice passengers away from their ‘charge-for-everything’ competitors,” he says. “Some industry commentators have suggested these ancillary fees are pushing traffic from the old legacy airlines over to Southwest.”
That’s simply not true, he says.
One rumor I’d like to address is that there has supposedly been some relevance to an airline’s year-over-year drop in operating revenue being attributed to their ancillary fee charges.
The fact is all airlines have had a drop in revenue including Southwest. Legacy carrier revenue has also been pressured lower by large reductions in international yields and historically weak demand for premium/business fares.
For those not aware, the 3rd quarter of last year had the highest average air fares in history. As the recession moved full steam ahead into 2009, passenger/traffic demand fell off a cliff. Typical to the industry, in order to entice passengers, airlines reduced fares.
The simple fact is the year-over-year drop in revenue has occurred because fewer people were willing to fly at the higher fares and not because of baggage fees.
The chart above shows month-to-month revenue passenger miles (RPM’s). SWA is Southwest, CAL is Continental and AA is American Airlines.
Here’s a look at the the month-to-month percentage change in RPM’s. Notice a trend? At the time American and Continental were steadily increasing add-on baggage fees, Southwest did not have any consistent increase in market share.
Now let’s have a look at Available Seat Miles (ASM) capacity. Again, notice the similarities.
And how about load factors? Once again, Southwest’s have moved up and down relative to Continental and American. (For the uninitiated, load factor is the percentage of seats filled and reconciles capacity with demand.)
Herbst draws the following conclusion:
There is no evidence to show Southwest’s competitors lost passenger traffic as they increased add-on baggage fees. The question should be how many hundreds of millions is Southwest giving up by not joining the crowd?
Southwest typically gets credit for being more of an industry leader than a follower. This time, Southwest needs to do some catching up.
Even though I wasn’t one of the industry pundits suggesting baggage fees were hurting airline profits, I had hoped the surcharges would be short-lived. Simply put, the extras are not good for customers — and that should be enough reason to do away with them.
{ 7 comments… read them below or add one }
I sure fly Southwest whenever I can . . .but really, the Bottom Line is the Bottom Line. It’s just a little more hassle to calculate it now. I rather like the Frontier model, where one can purchase the Classic fare for $25 more and get two checked bags, seat assignment & DirecTV on the flight.
It is a shame that passengers fly on airlines even when the airlines reduce their comfort. In AA’s case, I’ll be that passengers would be willing to give up another two inches of pitch and pay even more fees if they could get their precious frequent flier miles. These miles are like drugs.
I regularly watch grown businessmen crawl onto small AA regional jets and squeeze themselved into the seats on the Boston to NY or Boston to DC run only because they get FF miles for the trip. Amazing to me when Delta and USAirways have far more comfortable planes and better schedules.
Go figure.
Airline analyst Robert Herbst, who runs the site Airlinefinancials.com, reviewed the data and found baggage fees haven’t hurt legacy airlines. In fact, Southwest may be hurting itself by not charging more fees.
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That article is making the rounds:
http://seekingalpha.com/article/166558-airline-b aggage-fees-southwest-vs-the-industry
Personally, I don’t like the Southwest model (Jet Blue is inconvenient for me as it isn’t located at my home airport, and not many if not most of my destinations. I’ve never flown with them.), primarily concerning seating and boarding.
Moreover, when it comes to baggage and other fees, I prefer not to single the fees out, and instead look at the bottom line of the total amount spent to fly, round trip, to my destination(s) and back home. (Yes, of course I would prefer the fees to disappear.) I have found that Southwest is consistently more expensive (bottom line) than taking US Airways to and from my home airport. Couple that with things I don’t like about Southwest (and US Airways too), and US Airways comes out on top for me, most every time.
Do I think US Airways is great, and has all the answers. No way!!!
I don’t think there is a single US domestic airline which doesn’t have serious problems of service to the flying public.
I really like flying Southwest. Besides the free baggage, I love being able to change my flight without paying any penalties. There are no change or cancellation penalties even on Southwest’s cheapest fares. Plus, most of their employees seem pretty happy and are really much nicer than most of their competitors.
Booking a trip to CA next month, I needed a one way to SNA. I had a credit with SWA and just moved it to the new ticket, paid the $10 price difference bringing the ticket total to $160 plus I get 2 free bags to boot! Try doing that on a Legacy Airline and see what it costs!
I looked at the graphs and the text on the original website. I think the data presented does not really address the question properly. The comparison of the above metrics among American, Continental, and Southwest is probably not going to answer the question. One reason is that Southwest, in comparison to the other two is a domestic airline. Also, really, the best way to answer this question is to compare the changes in passenger choices in all competing markets, separately first. I would assume that this analysis will show Southwest gaining market share in some, and losing in others…I personally don’t think that the fees are the only factor driving the market. However it would be interesting to know the general trends, if such a thing exist. If there is an effect of Southwest gaining passengers because of their lack of fees, this should happen in markets where a passenger has a choice of flying Southwest vs. other airlines. It would be ludicrous to look for numbers to reflect a large number of passengers just limiting their travels to Southwest destinations altogether because of the fees charged by other airlines.