(Reuters) - Southwest Airlines, known for its popular “bags fly free” policy, said it will implement new travel fees next year as part of a plan to increase revenue by $1.1 billion.
The company told investors on Friday that it will raise fees on third bags and overweight baggage, increase fees for flights on AirTran, the carrier it bought last year, and roll out new fees tied to the sale of open and premium boarding positions at airport gates. The company also said it would implement a no-show fee for restricted tickets that are not canceled by passengers prior to departure.
“This should add ancillary revenue and promote customer behavior that allows us to re-sell the open seat prior to departure,” Southwest Chief Commercial Officer Bob Jordan said of the no-show fee during the investor meeting, which was webcast.
Southwest, which has a “bags fly free” policy under which there is no charge for a first and second checked bag, said the fee changes were expected to contribute about $100 million to revenue next year.
Of the $1.1 billion in revenue gains it expects next year, $300 million would come from the new fees and other moves related to improving operations, the Dallas-based carrier said.
The traditional discount leader, Southwest is now finding it must work harder to stay profitable in the face of labor and fuel cost pressures and rising competition.
Southwest has stressed a need to cut expenses to compete better with rivals that have restructured. Last year’s Chapter 11 filing by AMR Corp’s American Airlines leaves Southwest as the only major U.S. carrier that has not reorganized in bankruptcy.
Southwest’s cost advantage compared with rivals “is not as great as it was in the year 2000 but is still very significant,” Chief Executive Gary Kelly said.
“This is critical for our past success and of course critical for our future, to maintain our cost advantage,” Kelly said.
Shares of Southwest were up 1.8 percent to $10.32 in Friday trading.
Reporting by Karen Jacobs; Editing by Nick Zieminski