Southwest: $1 Billion in Revenue by Not Charging Bag Fees

Southwest airlines CEO Gary Kelly told reporters this week that Southwest had made an estimated $1 billion in revenue by not charging bag fees. Kelly claims his airline’s policy has stolen market share from competitors, all of whom charge fees for checked bags (though JetBlue offers one free bag). With that in mind, Kelly says Southwest plans to ratchet up its “Bags Fly Free” message by placing decals that read “Free Bags Fly Here” on some 50 planes, as well as similar banners on tarmac luggage carts.

At the same time, Kelly warned of high fuel prices this summer—which, you may recall, were the impetus for the industrywide rash of bag fees in the first place. Fuel isn’t terribly expensive right now, and has actually come down a bit over the past month, but the overall trend over the last year or so has been upward. With so many airlines seemingly hanging on by a thread, a sudden spike or even a continued upward trend could mean big problems.

Of course, the real attention-grabber here is that $1 billion figure. Has Southwest really stolen $1 billion in revenue by not charging bag fees? Well, maybe. Remember that bag fees have been around for over two years, so that’s a long period of time for a successful airline to work with. Factor in that the airline is in the midst of a sharp turnaround, after what was a difficult year in 2009, and the case grows stronger. Kelly said that bookings for 2010 are healthy, and that he expects Southwest to be quite profitable. So the $1 billion figure is certainly possible, though Kelly could easily be rounding up for the sake of a good sound bite.

Readers, what do you think? Is Southwest’s lack of baggage fees a strong enough draw to bring in that kind of marketshare? What do you think about the carrier advertising its bag policy on its planes?