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Southwest CEO talks baggage fees, economic realities, overweight celebrities

Southwest has caught a tailwind in these tough economic times. The all-coach, low-fare carrier is flying more passengers and making money while most big competitors struggle.

CEO Gary Kelly was in Orlando on Wednesday to tell a couple of thousand employees about the state of Southwest at an annual gathering at SeaWorld.

He talked with the Times about how Southwest has benefited by shunning bag fees, got a boost from bargain-minded shoppers in a recession and how it dealt with kicking a celebrity off a flight for being "too fat to fly."

How did Southwest fare last year?

A year ago, our outlook was we were going to lose our winning streak in terms of (annual) profitability. We didn't, not because the economy got better, but our people brought new products forward.

And for 2010?

Our January traffic was very strong. We had record load factor (percentage of seats filled), and unit revenues were up 14 to 15 percent. No one is close to that.

Basically, Southwest is carrying more people in fewer available seats?

And we're not giving the product away. Overall, our fares are fairly level with a year ago. Those trends are continuing into February, and March bookings look strong.

You've said Southwest increased its share of the domestic airline market by 1 percent, roughly $800 million in revenue a year. How much of that is the result of not charging for up to two checked bags and widely advertising the policy on television?

Certainly, "Bags Fly Free" has to be a contributor. Any customer you talk to — unless they've been living in a cave — know we don't charge for bags.

Besides the obvious cost, what bothers people about bag fees?

I hate the bag fee, and I'll bet you the other airlines executives would say that, too. It's inconvenient. You're trying to get checked in, and you've got to get your credit card out. People try to carry on more than they should. It slows down the boarding process. It slows down the flight.

But isn't the fee good for an airline's bottom line?

I think the analysis is flawed. A majority of people — 60, 70, 80 percent — will pay it and go about their business. But that other 5 to 20 percent is huge.

So, the share shift is all about bag fees?

It's hard to piece it apart. We have a strong low-fare brand, and traditionally in a recession we'll see better awareness of the Southwest product. People shop harder. So, was it awareness, was it message, was it "Bags Fly Free"? It probably wasn't just one thing. But "Bags Fly Free" was huge.

Southwest got a fair share of negative press from movie director Kevin Smith's removal from a California flight this month. Did you make mistakes handling the incident?

We have lots of transactions. We have 90 million boardings a year, 3,300 flights a day. It is an intimate customer experience. Things are going to happen. It's going to be flight delays, it's going to be weather, it's going to be customers of size. There are going to be customers with offensive words on their T-shirts. I think Southwest is better than anybody about valuing people, valuing our customers. If we have 132 seats, it gets back to the fundamental issue of physics. If someone needs more than one seat, something's got to give.

Our policy is you can't encroach — either for comfort or safety — on a second seat with someone in it. It has to be dealt with, and we try to do that as delicately as we can.

Southwest CEO talks baggage fees, economic realities, overweight celebrities 02/24/10 [Last modified: Wednesday, February 24, 2010 10:55pm]
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