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Southwest Airlines: Bye-Bye “Bags Fly Free”?

Trey Thoelcke

JetBlue Airways Corp. (JBLU) and Southwest Airlines Co. (LUV) were the last of the major airlines to permit passengers on domestic flights to check at least one bag for free. But that could be about to change. Southwest's CEO Gary Kelly said Thursday that, while the carrier has no plans to begin charging for bags soon, it might be open to doing so in the future as more air travelers become accustomed to the fees from competitors. So much for "Bags Fly Free."

The statement came in Southwest's third-quarter results conference call. The report had profits soaring due to rising fares and shrinking fuel costs. Net income came in at $259 million, or an adjusted $0.34 per share. That was up from net income of $16 million in the same period of last year. Revenue rose 5.5% year-over-year to a record $4.55 billion.

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The airline also said the average one-way fare increased 11.3% to $159.39. Labor expenses rose 6.9% to $1.27 billion, attributed to contract raises for union workers and higher health insurance costs. And Southwest filled 80.8% of its seats this summer, which was down from 82.1% in 2012.

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Last year, U.S. carriers collected almost $3.5 billion in bag fees, which was an increase from $464 million in 2007, according to government figures. Kelly said he feels that Southwest's policy of two free checked bags per passenger brings the airline business, as many customers go out of their way to fly Southwest because of that policy. However, Southwest is missing out on tens of millions of dollars a year in fee revenue and possible fuel-cost savings. For now.

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