Southwest Airlines: Seat Fees and Bag Fees Coming?

Airline Weekly founding editor Seth Kaplan writes at The Points Guy that Southwest Airlines may be doing worse at New York LaGuardia than at Newark, and they pulled out of Newark. He says they shouldn’t pull out of LaGuardia, though, and shouldn’t have left Newark.

The challenge of course is that at this point, given slot controls at two of the three New York airport and shortage of gates, it’s incredibly difficult to re-enter the market if you leave.

Of course the analysis needs to consider how much money the gates and takeoff and landing slots at LaGuardia could fetch, not just whether they can stem the losses.

Kaplan believes that part of improving the airline’s revenue is going to involve:

  1. Charging for seat assignments
  2. Charging for checked bags
  3. Distributing fares through travel agencies

In other words, while American Airlines CEO Doug Parker says his airline will never give you the flexibility that Southwest offers Kaplan thinks Southwest will move to become more like American Airlines.

It’s worth remembering that Southwest’s current model has made it the largest carrier of U.S. domestic passengers. Their stock trades at a higher price-earnings ratio than Delta, United, or American. And given their limited international flying they have a great deal more growth opportunity than the largest U.S. carriers overall. Southwest has the strongest long-term record of profitability in the industry.

In any case Southwest already charges seat fees in the form of early bird check-in, and checked bag fees drive down fares, and make the airline operation less efficient (increasing turn times, and even requiring use of additional planes to fly the same schedule).

So clearly Southwest’s business model isn’t working, and needs to mirror that of their less successful competitors. Kaplan predicts these changes within 10 years, and he may well be right. Never underestimate airline industry executives to make decisions that undermine their business.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I don’t know why I ever click this guys stuff…. absolute garbage…all the time.

    Bloggers are good at 2 things.. Churning credit cards and burning miles. If you EVER think that a blogger knows anything about the actual business…you have gone mad.

  2. What a ridiculous article. His whole basis on saying that Southwest is doing more poorly at LGA than EWR is lower fares. There a million other factors such as load factors, gate costs, etc.

    And typical TPG to advocate for the airlines to raise fees, and spinning devaluations for them, e.g. Bonvoy and others.

  3. This is stupid. You are basing this entire headline off of what one blogger – who works for a site with much less credibility than yours – happens to have an opinion of.

  4. On the plus side, it is an outsider saying what they should do, and not based on any statements or actions by the airline itself. Gary offers a quick response, which I agree with.

    Second, Southwest has a reputation for being lower fare, even when it often isn’t. For the analyst to say they often have lower fares confirms the perception much of the public has and is a selling point. I don’t think their goal has actually been to be consistently the highest priced carrier in a given market.

    Third, many would argue their flexibility and lack of fees drives a serious part of the loyalty that makes them so profitable, and certainly it is the underpinning of much of their successful marketing.

    Fourth, isn’t it the analysts and the Wall Street people that get the other carriers so focused on this quarter’s earnings that they have no big picture of how their squeeze-the-last-dollar-out-of-the passenger short term strategy affects customer perception and reaction in the long run?

    The point that I do agree with is that Southwest should look into making its fares available on other sites. I too may not always remember to check southwest.com when making a domestic reservation.

    The other thing they should do is publish their schedule further out. Right now I could make reservations on the others through about mid-July, but only through early March on Southwest. If I want to nail down that trip to Puerto Rico for Easter Week when a close friend’s daughter is getting married, do I book now with a pretty decent fare on American, or do I wait a few months for Southwest fares to finally come out, and risk losing the AA fare I see now? I’d definitely rather fly Southwest, but I’d also rather pay $400 than take my chances on what the price may be by the time Southwest opens up the calendar. Buy now or wait on Southwest is a decision I’d prefer not have to make.

  5. @DaveS

    Agree/+1

    – Southwest needs to eliminate the need to check its schedules separately;

    – Southwest needs to makes its schedule available for booking flights earlier/longer than it does now;

    – I’ll add: Southwest needs to begin offering red-eyes in markets that other airlines have had them for decades.

    Not having red-eyes is kinda like if Wrigley Field still didn’t have night games – RIDICULOUS!

    Time to catch up with the 21st century on that: start flying red-eyes.

    There’s a reason airlines have been flying ‘em for DECADES!

    In fact, they’re probably better off increasing their aircraft utilization with red-eyes in markets that they work for to enhance profits, than to adopt the same sleazy, fraudulent dishonest and deceptive selling practices as the rest of the other lousy airlines do nowadays.

  6. Yep, clickbait. Nothing revelatory, or even vaguely coherent. But thanks for the funniest line I’ll probably read all day: “Southwest’s business model isn’t working.”

  7. Another textbook example of click bait. And everyone knows it including Gary. A non-clickbait headline would be something like “TPG Blogger Believes Southwest Should Add Seat & Bag Fees; I Disagree”

    Kaplan may have a long-running interest in aviation as a reporter but he has zero expertise or experience in running an airline. His educational background is solely in journalism. Nor does he have any finance experience.

    So his opinion carries no more weight than any other non-expert amateur enthusiast – which includes Gary, me, and probably everyone else on here!

  8. Sarcastic? Hard to tell from the rabid collection of random words. I guess we’ll find out “within 10 years.”

  9. If and when Randy chimes in on this, who is TPG to speculate??

    FYI if you don’t know, Randy was the founder of Flyertalk 20 years ago, and founded InsideFlyer magazine. He knows. TPG?? WTF.

  10. There’s plenty of money to be made in publishing your content with honest headlines but you knowingly go the other way. You’re a cockroach, Gary.

  11. As usual, one of the consequences of writing an article in public is the giving the opportunity to uninteresting “nobodys” to complain and add nothing to a topic other than asinine replies that fully display their numerous inner frustrations. “Clickbait”, “I don’t like this”, “I want to speak to the manager”… It’s as if these people truly believe that everything revolves around their insignificant existence. “I just read an article I didn’t like, how dare VFTW waste my time, I must now complain ad nauseum and demand my money back”. So y’all read something in VFTW that you didn’t like? Noone cares! Move on and find something else to do.

  12. I’ll bet Southwest’s profitability does not depend upon its logo on a credit card or selling its miles to Banks, as we have learned here re American.

    This story should have reflected up front upon what was advised long ago by Speaker Sam Rayburn: “If it ain’t broke, don’t fix it.”

    Southwest’s business model ain’t broke; Boeing’s 737 MAX is what was broke that (temporarily) impacted Southwest in NYC due to the limited slots and higher costs.(permanent).

  13. My summary of his clickbait:

    So, like, you know, this guy on this other site, like, you know, said some stuff and, like, uh, I disagree.

    Here’s an idea for a better piece:

    Seth was the awesome when he did his own thing. His Airline Weekly podcasts were awesome. Full of hard data and excellent insights drawn from airline performance reports.

    Then he sold out to TPG.

  14. @Bill

    lol at the irony of telling people to move on if they don’t like something while not doing the same himself. take your own advice you clown.

  15. The real lead buried by the tpg and your article @Gary is that LGA needs to lose its distance restriction. You’ve covered this a ton for LUV, but LGA probably needs this restriction lifted even more. Despite all the hate on the construction situation, it is still the best airport to Manhattan, the Bronx, and northern Queens. If WN could start flying from California, its best market, to LGA, it would be hugely profitable.

  16. RE: Southwest’s lagging performance in NYC

    Perhaps if more New Yorkers knew about the airline it would be doing better than it is as so few people know it exists, much less where they can take it.

    Combining the lack of brand awareness with the need to make an extra effort to find its flights on its own web site – and no where else – well, then, is it really all that surprising that the airline isn’t doing well in the NYC market (aka one of the biggest and most lucrative markets in the world)?

    As to exiting Newark:

    1.) Terminal A, where its flights are, is a nasty, dilapidated, crumbling, dump.

    And they might be better off waiting until the now under construction, 1,000,000 square feet, 33-gate, $2.7 billion Terminal One (yes, as of now it’s a number and NOT a letter) is completed in 2022, too – because Terminal A at Newark really is an obsolete, nasty dump second only to that other NYC airport that still has a nasty, crumbling dump for its terminal, LaGuardia.

    Lastly, Southwest’s operations at Newark were largely as a result of required divestiture of gates and slots at Newark for United to gain DOJ approval to merge with Continental at the beginning of this decade.

    So, when slot controls at Newark were eliminated in October, 2016, which allowed other airlines, especially Spirit, which is MUCH BETTER KNOWN in NYC and also lists its flights on widely used search engines such as google flights or Kayak AND sells tickets via popular online travel agencies such as Orbitz, Priceline, etc., to expand its operations there, well then (again!) is it any surprise that Southwest fell behind other airlines there?

    In fact, come to think of it, with Frontier seemingly doing well at another NYC metro area airport that in years’ past Southwest largely had to itself, Long Island MacArthur, yet again Southwest’s go it alone strategy for marketing and selling its flights in an era when distribution is literally in the Palm of one’s hands via smartphones versus Frontier’s flights being included with the major search engines/aggregators such as google flights, Kayak (etc.) flight/fare searches, and then available for purchase via popular online travel agencies such as Expedia or Priceline or Frontier’s own web site with the ease and convenience of a few clicks on these hand-held devices after doing a flight/fare search using one of the popular methods noted above, seems to be an impediment to sales as Frontier celebrated the boarding of its 1 millionth passenger at ISP this past June 26th, which was just 22 months after the airline began service there with a single daily nonstop to/from Orlando (MCO) two years ago this past Friday, on August 16th 2017.

    And if anyone is wondering just how well Frontier is doing at ISP, apart from boarding its 1 millionth customer on June 26th, how’s this for an example:

    Southwest no longer operates daily nonstops to/from a Fort Lauderdale at ISP per its current schedule.

    Yep, that’s right, let that sink in: Southwest, which itself is among the largest airlines at FLL, and in years’ past typically offered two nonstops daily between ISP and FLL, is currently flying only ONE nonstop per week on this route after Frontier launched its service.

    How the mighty (Southwest, that is), indeed, has fallen at an airport that for much of this decade after the Great Recession it pretty much had all to itself.

    Wow!

    And if the news for Southwest for the ISP-FLL route already isn’t bad enough, Frontier announced last month that come November (just in time for the peak winter/snowbird season) it’s increasing frequencies at ISP to MCO to double daily nonstops (except Tuesday’s), and further expanding its invasion on all of the nonstop ISP-Florida markets that Southwest largely had all to itself for many years including Tampa and West Palm Beach.

    And not only that, but Frontier also offers far more nonstop destinations (eight, with some seasonal) than shrinking (dying?) Southwest, which at its peak there, offered two-dozen (or more) nonstops at ISP, including cities as far away as Las Vegas, including for Frontier:

    – Atlanta (where even after acquiring AirTran’s dynamic hub more than 8-years ago in May, 2011 Southwest hasn’t exactly done much to expand there, and if anything, has been content to be a distant 2nd fiddle to Delta – which, of course, yet another example of how incredibly cartelized/oligopolistic our airlines have become!)

    – Fort Myers

    – Myrtle Beach (seasonal)

    – Raleigh/Durham (see below for more about how well RDU is doing for Frontier at ISP!)

    To be sure, there have been some cities that didn’t work out for Frontier at ISP, such as Charlotte, Detroit, New Orleans, Minneapolis/St. Paul or San Juan.

    But, Atlanta and Raleigh/Durham proved successful enough to be upgraded from seasonal to year round in last month’s announcement of Frontier’s expansion at ISP – and come November, Southwest’s headaches at ISP will only worsen when Frontier increases its frequencies to DAILY from its typical pattern of a few times per week on the routes on all of the other popular Florida routes Southwest had all to itself at ISP in recent years:

    – Tampa

    – West Palm Beach

    This is in addition to the previously noted move to double daily nonstops (ex. Tuesday) for Frontier at ISP to/from MCO.

    As a longtime observer/commentator/ analyst of the airline industry, all I can say is as said above:

    Wow! How the mighty [Southwest] has fallen at ISP – an airport that if anything it ruled the roost and then some practically from Day 1 when it began service there a little more than two decades ago in March, 1999 with 12 daily nonstops to four cities:

    – Its “focus city” (but really a hub) at Baltimore/BWI (8x daily);

    – Another “focus city (that’s also really a hub) at Chicago/MDW (2x daily);

    Plus once daily nonstops to:

    – Nashville/BNA;

    – Tampa/TPA;

    Needless to say, Chicago-Midway nonstops are long ago gone, and Nashville, too, for Southwest at ISP.

    In fact, Southwest’s operations at ISP now are a far cry from their peak of two-dozen (or more), with daily nonstop frequencies there now down to just 11* – or one LESS than Southwest had when it began service there in March, 1999.

    *(5x daily BWI; 3x daily MCO; 2x daily PBI; 1x daily TPA. Once per week nonstop FLL service operates on Saturdays).

    So, yes, to me, Southwest’s big time fade-out in the New York metro area has a lot more to do with its complete failure to even communicate with customers in its catchment area that it even exists, let alone the destinations it flies to, plus its steadfast refusal to accept 21st century realities that to be relevant, it MUST CHANGE its distribution/booking model ASAP so that its flights are displayed on the search engines and online booking portals that people see immediately and actually use.

    I mean, seriously, even as someone who instinctually knows to include Southwest in flight/fare searches for cities it serves nonstop after doing initial searches using the other online tools I use, it’s still a hassle to waste time repeating everything each and every time I’m checking flight options and fares for myself and the many others that turn to me for guidance/recommendations or to straight-up book their flights.

    And in an era or short-attention spans, google flights, Kayak, Hopper, Travelocity and more, Southwest’s continued self-imposed exile from commonly used booking tools, if its exit from Newark, poor performance at LaGuardia, and shrinkage to fewer nonstop flights now than when it began service at ISP 20 years ago (while Frontier appears to be eating its lunch there) is any example, then Southwest’s problem is hardly that it hasn’t joined the airline industry’s Wall Street “Analyst” demanded/bullied into submission race to the bottom combined with “fee-a-pallooza” party (see the vastly degraded and diminished JetBlue, or the recently begun slide down the degradation slippery slope at Alaska Airlines for examples of that), but rather that its continued clinging to the so last century sales and distribution model eschewing the widely used flight/fare search engine aggregators; online travel agencies; app such as Hopper, and in the NY metro area a total lack of meaningful brand awareness likely better explains why it’s falling behind airlines that market themselves using those online methods that people now use for buying everything from toilet paper and cat litter to shows, clothes, jewelry, furniture, books, movie tickets, taxi (Uber, Lyft) rides, cars, food and much, much more – oh and while doing that, also engage in a wide array of sleazy and dishonest “bait and switch” tactics where eye-popping, too good to be true airfares (for most passengers) become the lure for an ever expanding/exploding and ever increasing/exploding in cost menu of “optional fees” that when all is said and done and the final cost is tallied up after the last bill has rolled in long after the trip, very often is as much, or more, than Southwest’s bundled fares that these “analysts” insist are the root cause of its woes.

    Oh, and one last thing while we’re talking about Southwest:

    Good lord! Why on earth is it more interested in “McBoeing’s” soon-to-be Brazilian division, Embraer, and its “E2” jets instead of Airbus’s far better A220 (née Bombardier C-Series) – assuming recent published reports are correct that Southwest seems to favor E-2s over A220s?

    I mean, seriously, between JetBlue, and its founder, David Neeleman’s, next great start-up, currently known only as “Moxy”, each already ordering A220s at 70 for JetBlue (yes, they already increased their firm order by 10 units) and 60 for “Moxy”, plus Delta’s already in-service AND increased to 95 units, why on earth would Southwest order the less capable, also ran offered by “McBoeing’s” Embraer?

    Just wondering on that…

    Cheers!

  17. Oh, and Southwest’s lack of red-eyes, too, to better leverage its aircraft utilization, as noted above!

    Can’t forget that 😉

  18. @Ryan

    As someone who knows something about the operational side of airlines and air traffic, I agree with you about what bloggers know. (I know jack about the revenue side, but I digress…)

    To add something a bit more productive: While “everybody knows” that EWR and LGA are subject to lots of delays, what’s less understood by most people is the underlying nature of those delays. The crossing nature of LGA”s runways and the non standard approaches to north bound runways (namely runways 4 an 31) mean that LGA takes an operational hit much, much sooner than most other airports. ORD has taken measures in the last few years to streamline their traffic flow and keep the throughput higher on a more consistent basis.

    LGA can’t do that, and there’s a much wider variation in throughput as a result. Take a look at cancellation numbers — LGA “averages” 5% cancellation rates or so, which would suggest 25 cancellations every day. It doesn’t work like that. Most days they can operate their full schedule, but when they can’t, they’re screwed — wiping out half the schedule isn’t unheard of.

    So the operational inconsistency at LGA is going to add costs in ways that would happen at few other airports. TPG points out the revenue squeeze; there’s a cost squeeze way beyond gate and slot acquisition.

  19. @Ex UA-Plat – Seth Kaplan is a serious aviation journalist. He didn’t ‘sell out to TPG’ he sold Airline Weekly to Skift, he’s got a few gigs, and Scott Mayerowitz over at AP managed to get him to write some pieces for TPG (which is a real coup)

  20. PS: discussion of the corporate side for booking flights on Southwest was omitted as I don’t do corporate bookings for anyone but my partner’s flights when he travels for work, so don’t have up-to-date useful experience to guide me as of this writing – and taking any more time off today to research what the latest issues are for that isn’t possible since it’s Sunday and I’ve already had my device in hand for too long 😉

    So, anyone with info on the issue of corporate booking for Southwest, and if that, too, is an issue that makes it harder to book flights on that airline due to its past history of eschewing GDS channels (SABRE, Amadeus, etc.) with its go it alone strategy might want to add their thoughts on that!

  21. @Gary

    While TPG getting Seth Kaplan’s work is a coup, I’m not sure that it’s the best move for Seth. As someone who works in the industry, I appreciate *good* analytic pieces, and Seth’s work just doesn’t fit on TPG’s website. TPG is known as the guy who sold out to make a buck, and for people who don’t know Seth, he’s taking a risk by having TPG be their first exposure to him.

    My first thought reading this article was “why would I go over to TPG to read a piece about the revenue side of an airline, that’s not what he does” and then having read the piece, I was like “this is way too analytic for a site like TPG.”

    Seth’s work as a guest writer would be a better fit with Cranky Flier, whom I read (and I know you do to) for a laid back but serious look at the airline industry beyond loyalty programs.

  22. Gary,

    Seth had — emphasis on had — an awesome podcast (Airline Weekly Lounge). It was one of the few podcasts that I regard as “listen where I can concentrate”. Going over the numbers, reading the tea leaves. It was great stuff.

    Then Seth sold the podcast to Skift. After the sell, the podcast is just a graveyard of lame interviews.

    Seth’s stuff on TPG? Don’t know. Not worth wading through tons of shilling at TPG.

  23. @Dan this isn’t really ‘the first thing’ Seth is doing, I don’t believe he’s a TPG employee, Scott twisted his arm for some articles. I believe he’s got a gig with Boston’s NPR station, syndicating his airline stuff.

  24. @Gary

    I didn’t say that TPG writing was Seth’s “first thing.” What I was trying to say was that the miles and points crowd isn’t the typical audience for Seth’s writing, and many people finding their way to a Seth Kaplan article on TPG will likely be reading him for the first time. For people who aren’t already familiar with Seth, he risks diluting his brand as someone who writes for TPG. As in, “he writes for TPG, he can’t be a serious aviation analyst.” And people reading TPG aren’t reading TPG for serious airline analysis (whatever that means…)

    Point being, his stuff doesn’t fit there. A guest post on Cranky Flier? Sure.

  25. Wow! So much antipathy for Seth’s TPG post that seems both unnecessary and unfounded.

    Disagreeing with what he says in that post by offering reasons why you disagree, and offering a reasoned counter-point for added-value and to make for a convincing argument as to why you think his post isn’t up to snuff (if you feel it isn’t).

    But taking cheap shots about him that impugns his talents or integrity for selling his weekly newsletter to Skift for what likely was a substantial offer that most people in his position would’ve accepted?

    Seriously!

    Like it or not, Seth created a publication of value that another company that covers the airline, hotel and travel industries, in this example, Skift, believed offered unique value that it believed would otherwise be hard to duplicate own, so they made an offer that Seth believed rewarded his many years of yeoman work to make it what it was.

    It was Seth’s decision to make – and obviously, he believed it to be a worthwhile proposition – assuming nothing untoward was done to otherwise force his hand.

    End of story.

    But dinging him over a column that after reading it I found to be fact filled and compelling, strikes me as unfair.

    Agree (as I do over things like Southwest’s last century approach to distribution and lack of brand awareness in the NYC Metro area) or disagree (as I strongly do over Seth’s advocacy that in the future Southwest will be a better airline [for whom?] if it waves the white flag and surrenders to Wall Street “Analyst” bullies whom have long sought that it abandon the flyer friendly, brand equity, elements that make Southwest different and much better than the rest of the greedy, rip-off, sleazy, dishonest, fee addicted airlines by imposing all sorts of bs fees that simply exist to better fund obscenely generous stock buybacks and little else), with what Seth wrote in the TPG post on the merits.

    But otherwise, it certainly seemed to me as an otherwise perfectly good post.

    Now, if it was “dumbed down” from Airline Weekly, and that’s what the issue is that’s behind the negativity for some – well, that’s still NOT reason to beat him up for the TPG post as they’re altogether different publications, where one, Airline Weekly, was a pricey paid subscription with an audience that was PAYING for a degree of detailed data and analysis, while TPG blog posts are free to all comers, and advertiser supported.

    So, it would seem that expectations of having the type of information in a freely available, mass market TPG blog post that was commonly found in a high priced, paid subscription newsletter geared towards high level managers, leasing companies, financial institutions, hedge fund managers, and possibly, extremely sophisticated investors may be a bit out of line with the reality of who TPG’s audience is, and of course, that the blog post is FREE!

    JMHO.

  26. In the reader comment posted above, for the 2nd paragraph, the corrected copy should be as follows:

    “Disagreeing with what he [Seth] says in that post by offering reasons why you disagree, and offering a reasoned counter-point for added-value and to make for a convincing argument as to why you think his post isn’t up to snuff (if you feel it isn’t) is one thing.”

    With apologies for omitting the final three words in the original version.

  27. Can someone teach @Howard Miller to build a website so the comments page here doesn’t get hijacked by essays instead of useful questions and comments?

  28. Despite its over-valuation on Wall Street, Southwest has the worst long term business model among the major US airlines. This is basically what Seth is writing about. Things will change at Southwest. Or they will suffer a slow decline. The rise of a new generation of actual low fare airlines with much lower costs is a huge risk to their future. At the same time, they don’t have the reach — or the ancillary revenue — of the 3 major network carriers. It’s not a comfortable place for them to be. I am certain WN management knows this. What they can do about it — especially with their high labor costs — is currently unknown.

  29. Southwest’s pricing isn’t good any longer, compared with other mainline US airlines. The only things attracting me to Southwest are 1)Companion Pass, 2)No change fees, and 3)Free bags. Change any part of that and Southwest isn’t an airline to pick any more.

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