No-frills Southwest may have to consider some
Southwest Airlines Co. Chief Executive Officer Gary Kelly piqued investor curiosity recently when he said new ways to generate revenue are “under construction.’’
The discounter barely has a toe in the big pool of money that rivals collect from so-called ancillary fees for, say, food bought on board or preferred seating. And Kelly has ruled out some of the juiciest mainstays at other airlines, such as charges for checked bags, assigned seats and reservation changes.
“That’s not what we do,” he said on an earnings call. Southwest has “better opportunities that fit our brand.’’
Kelly won’t go into specifics just yet, and Southwest declined to provide additional comment. Here are some likely options:
More perks: While Southwest flies just coach cabins and has no assigned seats, it does have several fare categories, including Business Select, which comes with a free drink, a spot among the first 15 passengers to board and expedited security screening in some locations.
Southwest could provide additional perks at higher prices, said Adam Hackel, an Imperial Capital analyst. A passenger might pay extra to gain access to priority screening, for example, or to get her bag in the first wave off the luggage carousel. The extras could be sold separately, like Southwest’s Early Bird boarding option, or built into fare categories along the lines of Business Select.
Forward seating: Southwest could also take Business Select a step further — think business-class lite. The carrier always has dismissed the idea of offering a firstor business-class cabin, so isn’t expected to add seats with more legroom for a higher fare.
It could, however, charge more for guaranteed access to as many as four rows near the front of the plane, said Jamie Baker, an analyst at JPMorgan Chase. Up-selling opportunities: Instead of — or in addition to — adding perks on the high end, Southwest could reduce benefits in cheaper fare categories. One possibility, for example, would be not allowing a passenger who cancels a ticket to use the amount paid toward another flight.
This plan would take a page from the many rivals who offer basic-economy fares. Those barebones tickets often entice travelers to buy more-expensive options. While Southwest has said basic economy per se is off the table, a few changes could have the same up-selling effect. Seller beware: Ancillary fees accounted for just 3.1 percent of Southwest’s passenger revenue through the first nine months of last year, lagging well behind Delta Air Lines Inc. and United Continental Holdings Inc. U.S. carriers as a whole took in more than $3.6 billion in checked-bag fees alone during the period, according to the U.S. Transportation Department.