Adding bag fees now would cost Southwest $1 billion, says CEO

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Ancillary fees are nirvana for most airlines today — but not Southwest. CEO Gary Kelly actually said charging for bags now would harm the airline’s bottom line.

Southwest’s research shows that implementing baggage fees would cost the airline $1 billion in the form of defecting customers, Kelly said Thursday during Southwest’s call to discuss the airline’s first-quarter results.

Gary Kelly“I don’t think ancillary revenues in today’s environment are the answer to hitting our earnings target,” said Kelly.

Southwest’s secret sauce for the near future: optimize its route network. That means eliminating underperforming routes, redeploying aircraft and managing capacity.

“That will dwarf any ancillary fee benefit,” said Kelly.

Kelly did not rule out fees in the future.

“For all we know , customers will say three years from we want you to separate out bag fees,” he said.

However, for United Airlines, the time for ancillaries is now.

During its first-quarter call on Thursday, United said ancillary revenue increased 13% in the first quarter. Sales of Economy Plus seats were up 40%.

The airline’s goal is to increase ancillary sales by at least 9% in 2013, said Jim Compton, United's chief revenue officer.

Compton credited the revenue increase to an increase in more direct bookings, either on United’s website or its mobile apps.

He added that direct bookings are United’s lowest-cost distribution channel.

Follow Kate Rice on Twitter @krtravelweekly.

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