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.
