Skift Take

Whether Bags Fly Free stays or goes, rest assured that Southwest will be introducing new or higher fees in some areas as it makes a big push to bolster revenue.

With its AirTran integration proceeding apace and the introduction of reservation technology from Amadeus slated to be complete by 2014, Southwest Airlines indicated that it is working hard on adding international service.

CEO Gary Kelly, conceding that he was “not satisfied” with third quarter earnings and a weak September, said international routes look “very attractive” and “handsome” from a profitability perspective.

He added it would take two years of work for Southwest to introduce international flights because of the technology challenges, including new reservations and revenue management sytems.

AirTran already flies to Aruba, Cancun, Mexico City, Punta Cana, Montego Bay and Nassau/Paradise Islands, and Kelly said Southwest would have to gain international capabilities o complete the AirTran integration. Southwest acquired AirTran in May.

Asked during an earnings conference call with analysts today whether Southwest plans to introduce Hawaii service, which would be an over-water, but domestic flight, Kelly said he didn’t want to telegraph any plans to competitors.

On another over-water domestic destination, Kelly said the airline is currently seeking certification for San Juan service.

Will bags still fly free? 

Southwest has five projects under way or planned to increase revenue, including a new revenue management system and fleet modernization.

With Southwest’s bid to increase revenue, Kelly provided interesting insights about Southwest’s thinking about fees as he was asked whether there would be any changes looming for its Bags Fly Free policy, with its free first- and second-checked bags.

“For now, of course not,” Kelly said, although he said the airline needs to augment revenue so it wouldn’t rule anything out.

However, he indicated that with Southwest’s lack of fees for first- and second-checked bags, Southwest still has better unit revenue than does AirTran, which charges $20 for a first-checked bag in coach and $25 for a second checked bag.

Kelly says the Southwest brand has a better opportunity to increase unit revenue than does the AirTran brand. “Certainly, we want to get it [AirTran] over to Southwest as fast as we can,” Kelly said.

It should be noted that despite the Bags Fly Free policy, Southwest takes in a ton of revenue for other ancillary fees, including for those for excess bags, Business Select, pets, and unaccompanied minors.

Other hot-button issues

Southwest officials touched on other hot-button issues, as well.

New CFO Tammy Romo said Southwest has raised fares five times in 2012, compared with eight times in 2011, although it has had to reduce some walk-up fares for competitive reasons.

“We are evaluating our ability to raise fares,” Kelly said, citing higher fuel costs and the weak economy.

Translation? Expect more fare increases when Southwest deems the timing is opportune.

Kelly was asked about American Airlines’ operational challenges in September, and he said Southwest didn’t feel any “meaningful benefit.”

Still, Kelly added that there had be some uptick for Southwest because of American’s woes. “I assume whatever it was, was temporary,” adding that American is a strong competitor and will undoubtedly “get its act together.”


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Tags: earnings, fees, southwest airlines

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