First bags fly free at Southwest Airlines but the low cost carrier collected more ancillary-fee revenue in the fourth quarter than did Northwest, United, Continental, AirTran, JetBlue and Alaska Airlines.
At $157.2 million, Southwest came in fourth among U.S. airline ancillary-fee collectors, according to a tally released May 3 by the U.S. Bureau of Transportation Statistics.
So, when it comes to “nickel and diming,” Southwest is taking a clever marketing tack with its free-bag mantra, but behind the scenes it is aggressively collecting fees for services unbundled from the basic fare.
As has been the pattern, Delta was the fee king at $425.7 million, far ahead of #2 American at $253.3 million.
The ancillary fee revenue includes bag fees, change fees, standby fees, pet transportation and the sale of frequent flyer miles to business partners. It excludes seat-assignment fees and charges for things like onboard meals and entertainment.
Here is the U.S. Bureau of Transportation Statistics’ tally among the top 10 U.S. carriers in collecting ancillary-fee revenue in the fourth quarter of 2009:
So, while Southwest is picking up market share from its “Bags Fly Free” campaign, the reality is that Southwest is a fee-hungry airline, collecting bags full of ancillary revenue from third-bag fees, EarlyBird Check-in, pet transportation, unaccompanied-minor fees and other services.
Southwest was not in the top 10 when the Bureau measured bag fees separately.
Delta headed the list for bag fees at $131.1 million for the quarter, but American Airlines and US Airways weren’t too far behind at $129.2 million and $122.5 million, respectively.
Here’s the bag fee top 10:
Spirit Airlines was the 10th largest bag-fee collector at $14.3 million in the fourth quarter, but could move up the charts when the figures are published for the second quarter of 2010 as the airline began last month to charge passengers up to $45 for carry-on bags.
As major U.S. airlines hone their merchandising skills over the next few years, these fees numbers are going to skyrocket.
Southwest doesn’t have change fees or second bag fees as you state.
Dennis, two bags fly free on SWA.
Also, Southwest does not charge reservation change fees.
This is a very unfair comparison, especially when claiming that Southwest is “fee-hungry.” This is because Southwest is larger. When one determines ancillary revenue per passenger, for example, WN’s position in that list drops.
2 bags fly free, and I’ve never had to pay a change fee on SWA. Where do you get your information?
One more thing: Revenue from partners for miles/credits may be included in the DOT/BTS’s definition of “ancillary,” but that has never been a service bundled in the basic fare.
Joel: You are indeed correct. First and second bags get checked for free on Southwest.http://www.southwest.com/bagsflyfree/ Third bag costs $50. My bad. I corrected it. Thanks again.
Does the DoT say what they include/what’s captured in their numbers? i.e. what ancillary services?
Douglas: The ancillary fee revenue includes bag fees, change fees, standby fees, pet transportation and the sale of frequent flyer miles to business partners. It excludes seat-assignment fees and charges for things like onboard meals and entertainment.
this cracks me up, the Southwest management perusing the online news media to immediately protect them. Don’t you have enough money.
All: I made 2 errors originally in this post and have since corrected them. Southwest doesn’t charge a second bag fee and doesn’t charge change fees. I apologize for these errors.
However, apart from Bags Fly Free, Southwest has undertaken a deliberate strategy over the last year or so to increase its ancillary-revenue fees.
My only point is that Bags Fly Free is great, and I recently took advantage of the service. But, Southwest has increased fees for unaccompanied minors, introduced a pet fee, Early Bird Check-in and increased excess and overweight bag fees.
Look, Southwest is a great airline. And it obviously has a right to make money.
The latest Bureau of Transportation Statistics show that it is collecting more fees than several other major U.S. airlines — despite all the good will Southwest generates from Bags Fly Free.
In October, Southwest CFO Laura Kelly noted that the airline took in $10 million in revenue during the third quarter from a new pet fare, unaccompanied minor fee, and excess and overweight bag fees. (Just the excess and heavy bag fees account for about $40 million in revenue annually.)
And, the airline attracted $2 million in revenue in September for its EarlBird Check-in product.
Does Southwest get to fourth on the above list because it is larger than Continental and United?
If someone has those stats, feel free to chime in.
Just scroll on down to Table 1B. Ancillary revenue was 5.8% of Southwest’s total revenue, which is the same as JetBlue, who doesn’t charge for the first, either. That rate is lower than every other major US carrier.
Well the fees WN is making money off of are for things that aren’t part of the “normal” ticket anyway. EVERYONE checks luggage, almost EVERYONE eats a small snack or gets a drink… the same can’t be said for having a pet onboard, flying an Unaccompanied Child etc, those are extras and at WN apparently people are willing to pay for them (as they should be).
Dennis,
Why don’t you go back and look at how many people flew on Southwest in the 4th quarter of 09 compared to United, Continental, AirTran, JetBlue and Alaska Airlines? Of course they took in more for fees because they carry more people. I see you really did some good research here as indicated by your mistakes in the original posting. It amazes me that people can post such crap. Go back and do some more research buddy!
@patrick – steady eh.
Shouldn’t the “Early Bird Checkin” be considered under seat assignment as it has to do with getting a boarding pass? Seems since SWA doesn’t have assigned seats that would be the closest it would come to it. I also agree that most fees SWA charges are for extra services. You can make reservations, get a ticket, check 2 bags, carry on a bag, change your reservtion, get a snack and drink (non-alcohalic) and only pay your airfare. What other airline SWA’s size does all that??
Dennis,
You say that “Southwest has undertaken a deliberate strategy over the last year or so to increase its ancillary-revenue fees.” as though this is a bad thing. I look at the tables and think how refreshing it is to actually see airline revenues increasing at these levels. Fees aren’t new, so no-one should be suprised that airlines are incorporating them into their merchandising strategies.
Dennis,
Early Bird check-in is optional product. The revenue earned from the Early Bird product can not be included in your “fee comparison.” Also, Patrick is correct, for this to be a true comparison the number of passengers carried in Q4 for each Airline must be included. Next time try comparing the % of total revenue from fees instead of total $$ collected from “fees.”
Dennis:
You should rethink this entire article. Did you originally post this to boost a viewpoint about baggage fees? The facts don’t backup your argument re SWA and baggage. And there is no way that UMs, pets or overweight bag fees could be this large a number.
So what’s that leave?
Now look at the notes in the source doc from BTS
Quote:
“* Ancillary fees include baggage fees, reservation change fees and miscellaneous operating revenue, including pet transportation, sale of frequent flyer award miles to airline business partners and standby passenger fees. Revenue from seating assignments and on-board sales of food, drink, pillows, blankets, entertainment, or any other ancillary items are reported as Transport Related Revenue and cannot be identified separately.”
My bet is that SWA made a major sale regarding the SWA Frequent Flyer program in 2009Q4 Either that or they sold a bunch of booze on their short hops!
Next time Dennis, don’t let the facts get in the way of your opinion.
All: I will attempt to address all of these issues. Southwest is compiling some additional numbers for me, so I’m awaiting its answers. Stay tuned, pleased.
All: Some of your criticisms about the article above are correct.
Southwest tells me that the “vast majority” of the $157.2 million in ancillary-fee revenue that the airline garnered in Q4 2009 was “from business partner revenues, which includes our frequent flyer partners.”
From the DOT numbers, we know that Southwest earned $6.8 million in bag fees in the fourth quarter, placing it 15th on the bag fee list in the fourth quarter as Southwest doesn’t charge for first and second checked bags.
Southwest says in Q3 and Q4 2009 combined, it took in $32 million in pet revenue (a very small percentage), EarlyBird Check-in, and unaccompanied minor charges. Southwest doesn’t charge to change reservations.
Southwest also points out that its #4 position on the ancillary revenue chart may have been driven by the fact “that we carry more passengers domestically than any other airline.”
That being said, I listened to an analysis May 5 of Southwest’s ancillary-services strategy by airline consultant Jay Sorensen, the president of IdeaWorks Company. For more about his talk, see this link. http://www.tnooz.com/2010/05/05/news/consultant-airlines-love-fees-hotels-will-be-infatuated-too/
Sorensen argues that 2009 represented somewhat of an about-face for Southwest as it abandoned its 2008 no-fee strategy and instituted
$50 fees for unaccompanied minors, $25 additional for overweight or third-checked bags, and a $10 fee for EarlyBird Check-In. The airline also implemented a $75 one-way pet fare.
Southwest prudently also is keeping its options open on first and second checked bags. Sorensen notes that the Elliott Blog reported in January that Southwest conducted consumer surveys to test reaction to potential $15 fees for first and second checked bags.
So, indeed if Southwest’s #4 position largely reflects frequent flyer transactions with business partners, then it was misleading of me — and possibly the Bureau of Transportation Statistics — to posit that Southwest is among the leaders in what we commonly refer to as ancillary fees.
That being said, Southwest indeed is embarked on a strategy to increase its fee revenue, despite the fact that it has gained market share from its Bags Fly Free policy.
As CEO Gary Kelly said last month, the airline will pursue a strategy of introducing new products along the lines of Business Select and EarlyBird Check-in.
So my views on how Southwest’s ancillary services strategy is evolving did get ahead of the facts. (And, the Bureau of Transportation Statistics could have done a better job by not lumping frequent flyer mile sales to business partners in the ancillary fee category.)
On another point, Sorensen argues that the DOT’s Bureau of Transportation Statistics numbers on ancillary fee revenue are flawed. He notes that the BTS does little to police the numbers, and that a carrier such as Delta may top the list because it more accurately compiles its numbers than do some other airlines.
Thanks for pointing out the flaws in my article.
Hey, that’s why we have a comment section and “community.”
Thanks for the clarification Dennis. It takes a big man to admit a mistake. And even bigger to publish it!
SWA has spent a bundle advertising how they are different than the legacy majors and their “free bag” policy, so it would be surprising for them to change and charge. SWA has long NOT charged penalties, and that too has worked for them over the long run.
The consultants and pundits can say what they want about Southwest, but clearly the management talent and philosophy of SWA has out-performed their competition.
FYI… yes, the “pet fee” was established during this past year, but before that, pets were not allowed at all on Southwest. All airlines (to my knowledge) have always charged a pet fee, but it’s not like pets were flying free before on SWA.
You you should edit the blog subject Southwest Airlines tops Continental, United, Northwest in ancillary-fee revenue | Tnooz to more specific for your subject you write. I enjoyed the blog post however.