Is it Nuts To Charge For Bags?

Southwest is still the only major airline that does not charge for first and second bags checked in. Recently United introduced a subscription plan for bags at $249 a year. I wrote why that is a good move for multiple reasons, strategically and tactically. Southwest’s blog “Nuts About Southwest” has a post on this fee that asks, “Why do they hate your bags?“.  Can South West continue to offer  “Bags Fly Free”? Barrons .com columnist Bob O’Brien writes,

Shares of the average stock in the sector have declined 2% in Thursday’s trading, nothing like the 7% setback that has been inflicted on Southwest shares

Southwest introduced  unbundled pricing, by charging a fee to board first. O’Brien adds that Southwest generated $10 million in revenue from other extra fees but may be hitting the wall on creativity.  Just how big is the opportunity for profits from baggage fees? From my previous calculations, rest of the airlines that charged for the first and second bags, took in a total of about $536 million.

Southwest is trying to generate more profit by cutting capacity in loss making legs. But how long  can it continue to ignore the size of the profit pool, facing declining stock price? They charge for the flexibility to board first, because it adds value to customers who are willing to pay for the flexibility.   If carrying bags adds value to the customers, shouldn’t they be charged for it?

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