Las Vegas Sun

March 19, 2024

Bags fly free policy could cost Southwest Airlines in unexpected way

Southwest Passenger Jets at McCarran

Steve Marcus

A view of Southwest Airlines passenger jets Thursday, Nov. 26, 2015, at McCarran International Airport.

Southwest Airlines has made its bags-fly-free policy a core part of its branding and a way to differentiate itself from other U.S. airlines.

And while the Dallas-based carrier willingly trades the extra bag fee revenues it could earn in favor of increased customer loyalty, a new study shows the policy could be costing the company in a less obvious way: on-time departures.

The study tracked the impact airlines' decision to charge for checked bags had on operational performance, as more people carried on their bags and traveled with less luggage overall.

It found that even with more people carrying on bags to avoid the fees — creating a logjam as people jostle for overhead bin space — that extra time boarding was outweighed by the time saved from having to process and load fewer checked bags into the plane.

Fewer checked bags also means fewer chances for problems in the complex baggage handling process that gets luggage from the check-in counter to the tarmac.

"What we found is an improved departure delay performance right after airlines started to charge bag fees," said Mazhar Arikan, a business professor at the University of Kansas who co-authored the study published last month in the journal Management Science.

Arikan examined about 9 million domestic flights between May 2007 and May 2009, the period when most U.S. carriers began charging for checked bags as high oil prices and the economic recession battered the industry. That time frame was chosen to measure the impacts immediately before and after the change, he said.

The study controlled for more than a dozen factors including weather, airline, aircraft type and passenger loads to isolate the effect that the bag fee policies had on on-time departures.

It found that after fees for the first checked bag became widespread, the average departure delay dropped by two minutes on average.

All U.S. airlines, including Southwest, saw an improvement in on-time departures as a result of the bag fee change, something Arikan suggested resulted from fewer checked bags overall being handled at a given airport.

"There's less burden on the system because passengers changed their behavior," he said.

But Southwest saw a smaller benefit than the other airlines that did begin charging fees, suggesting that its bags fly free policy was encouraging more checked luggage, which in turn slightly hurt on-time performance.

Although the difference between Southwest and other fee-charging carriers is a few minutes or less, Arikan said that loss of efficiency still translates to potentially millions of dollars Southwest is missing out on.

"It can lead to increased [plane] utilization and that increased utilization has some monetary [value]," he said of the time saved. "For Southwest, these are opportunity costs."

It's a cost Southwest is seemingly happy to bear, with CEO Gary Kelly consistently defending the company's bags fly free policy as a key driver of customer loyalty and a foundational part of its brand.

The company said it's constantly focused on improving on-time performance while maintaining its low-cost model.

"Our customers tell us they enjoy our transparent and fair pricing and we consider "Bags Fly Free" a cornerstone of the Southwest hospitality we offer customers each day," Steve Hozdulick, Southwest's managing director of operational performance, said in a statement. "We don't view checked bags as a significant detractor from our overall on-time performance when weighed against the baggage convenience we offer our customers."

Southwest's soon-to-launch overhaul of its reservations system will give the carrier the option to charge for bags, but it's not something the airline will likely take advantage of soon, even if Wall Street investors think there's potentially hundreds of millions of dollars — bag fees brought in $3.8 billion industry-wide in 2015 — to be made.

"We have no thought of charging for bags," Kelly said during Southwest's Investor Day presentation in June. "We've got a really good thing here and we need to be really thoughtful about how we tinker with it."

Join the Discussion:

Check this out for a full explanation of our conversion to the LiveFyre commenting system and instructions on how to sign up for an account.

Full comments policy