Will Southwest’s Move into Atlanta Signal the End of Checked Baggage Fees?

Tommy passes along an article on Southwest’s plans for Atlanta, which suggests that Atlanta could become the carrier’s biggest city.

His note with the link? “The end of bag fees.” Intriguing argument, one not made in the piece. But Southwest merger partner has over 200 flights daily in Atlanta, Southwest has only about 10% more than that in its biggest city, Las Vegas.

If Southwest goes to war in Atlanta, and maintains its baggage fee stance, and if that shifts customers away from Delta then one possible competitive response is for Delta to drop baggage fees. Hard to imagine they could do so just in Atlanta. If they did it systemwide other majors would surely have to follow.

So far, so good. And I’ve long suspected that while baggage fees have added some revenue to airline bottom-lines through greater price discrimination, that overall it isn’t nearly as lucrative as most reports claim. Simply totaling bag revenue and saying that’s the total effect on revenue misleads, it just draws a circle around total trip cost and pretends it’s marginal revenue. The logic of bag fees seem flawed as well, because most of baggage transfer is a fixed cost so bundling it with ticket price should be a revenue maximize.

But more likely I’d see Delta’s response as matching fares to Southwest destinations, assuming folks won’t decide carrier based on baggage, and leveraging their miles program to reward business travelers and frequent flyers. That’s the United playbook against Southwest in Denver and against Independence Air at Washington Dulles before that, and made for some really great offers. While baggage fees may be a real differentiator for Southwest, and while I’m not a huge fan of the Skymiles program, Southwest is widely expected to gut their own Rapid Rewards program next year (likely moving to a more revenue-based model) and thus further differentiating themselves from Delta on the downside. So it makes sense for Delta to leverage that difference between the two when they do battle.

Airtran wasn’t able to kill Delta, and their costs were lower than Southwest’s. So I really don’t expect Delta to go down to the new marketing team in the neighborhood, regardless of the brand or paintjobs on the aircraft. And I doubt that Southwest’s move into Atlanta will signal the end of bag fees. But it’s an interesting thought exercise nonetheless.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. “The end of baggage fees” is more wishful thinking than anything else. Just like DEQM promotions.

  2. I think it highly improbable the majors will eliminate bag fees. It really is generating hundreds of millions of dollars in additional revenue for the legacy carriers. Most frequent flyers don’t check bags. Those who do can easily eliminate the fee by being elite (pretty low threshold) or getting DL’s Skymiles AMEX card. Meanwhile, DL can charge the same fares as WN but then collect additional revenue. It’s a good deal for them, and is the reason why there are very, very few low cost airlines in the world that don’t have bag fees.

  3. What is the reason people are thinking WN is going to gut RR in the 2.0 version? Is it thought the program is costing them too much, more than others? I really hope they don’t come up with a program like B6 or VX. I’ve never been inclined to participate in and fly B6 and VX largely due to the way those programs now work.

    Although I have given up legacy top elite status to fly WN for the low fares, no change fees, and RR including the companion pass and flexible awards and just overall a good experience eg web site, no fees, easy to change/cancel, gift awards, etc.

    I probably check bags 3-4 times a year, and thats not as important to me personally.

    I do feel better about WN as a company than the legacy carriers. I mean they are a business and all, but they do seem to try more than the legacy carriers to provide good customer service (including less nickel and diming) even to infrequent customers. I feel good about the WN brand and company values and company culture. Thats not to say there aren’t any issues. But I can’t say I feel good in the same way about the legacys company values. I consider WN cutting edge also because they appear to be a trend setter with eg blogging, podcasts, twitter, etc. I also perceive they treat their employees better eg apparently no pay cuts, lay offs, etc.

  4. Delta can’t be relying heavily on baggage fees currently, especially with the Skymiles AMEX allowing one bag per ticket for free up to 9 bags. You can’t tell me that the AMEX partnership is a big enough cash cow for Delta that it’s offsetting that cost.

  5. Honestly, I doubt that DL will be giving up bag fees, as even with WN flying to all of their destinations from ATL, there will still be many destinations that DL has no competition. Also, if this were likely to happen, UA would have made some sort of move because of the competition in Chicago and DEN

  6. Mika, Southwest’s customer opinion surveys all described something very much like the new JetBlue and Virgin America programs.

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