Southwest Airlines has announced plans to increase fees on all its flights. Fee increases will also apply to AirTran, which Southwest purchased in 2010. Because of rising fuel and labor costs, the airline, famous for its "bags fly free" policy, is having to rethink its strategy.
In 2011 the airline industry collected about $8 billion in ancillary fees -- what you pay to check bags, order food, pick your seat -- things other than the fare. Profit for the entire industry last year was less than half of that.
Samuel Engel, a vice president at the airline consulting firm ICF International, says when Southwest decided not to charge customers to check bags, the company "quite publicly made a decision not to follow along with the rest of the industry. "
That decision helped Southwest keep marketing itself as a discount airline. But according to Michael J. Boyd of the Boyd Group, Southwest hasn't been a low-cost carrier for five years.
"To their credit they are not a low-cost carrier because they pay their people decently. So they have to dance around issues, and fees are one of those issues they are going to have to start striking up the orchestra and dancing with."
Southwest will increase fees for third bags and overweight baggage and will institute a new no-show fee for passengers who miss their flight. The company expects the fee changes to increase revenue by at least $100 million next year.