Southwest Airlines Co., the discount carrier with the advertising slogan “Bags Fly Free,” forecast $100 million a year in revenue from fee changes including new charges for premium boarding positions and no-shows on flights.
The carrier is increasing its so-called ancillary fees structure starting in the first quarter, Bob Jordan, chief commercial officer and president of Southwest’s AirTran unit, said Friday at an investor meeting in New York.
Southwest Airlines flies out of both Cleveland Hopkins International Airport and Akron-Canton Airport. The low-fare carrier started new service at Akron-Canton in August.
Southwest is adding new fees as it hunts for fresh sources of revenue to cover rising costs for labor and jet fuel at a time when constrained capacity is limiting growth from ticket sales. It also marks a reversal in Dallas-based Southwest’s reputation as a no-frills carrier that has bucked industry trends by letting passengers check two bags for free.
“The industry and we at Southwest realize we cannot sit still as things change,” Jordan said. “We have not. We have added numerous new sources of revenue.”
Passengers can still check in two pieces of luggage for free, although charges for a third checked bag, overweight bags and early boarding will increase, Jordan said.
Southwest shares have risen about 18 percent this year.
Southwest Chief Executive Officer Gary Kelly declared rising expenses Southwest’s enemy a year ago, after bankruptcies that let so-called legacy carriers such as Delta Air Lines Inc. shed debt and restructure operating and labor spending. Those steps cut Southwest’s cost advantage in half and pushed its employee pay rates to the highest in the industry.
“We are managing as aggressively as we dare to evolve the Southwest Airlines customer experience and operations to be successful in this environment,” Kelly said.
The fourth-largest carrier will also change the way it turns airplanes around between flights and how it schedules crew and aircraft block time, which will add $100 million in revenue, Jordan said.
Southwest bought AirTran Holdings in 2011 to expand its fleet and add service in Atlanta, the biggest market it didn’t yet serve.
Some of the increased fees will be for AirTran itineraries, which won’t be fully integrated into Southwest operations until the end of 2014, Jordan said.