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.