AIRLINES October 14, 2009, 3:33PM EST

Southwest Gains Passengers by Skipping Fees

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fee-charger: "Is this a joke?"

Travel writer Joe Brancatelli has gone so far as to suggest that baggage fees are harming airlines' overall revenues as the traveling public demonstrates its displeasure. In a recent column, he says passengers are penalizing carriers that pile on bag fees. Brancatelli quotes an anonymous airline executive who calls the fees shortsighted because of the risk that people will book elsewhere. According to Brancatelli's reasoning, the airlines are missing the entire revenue picture, adding $15 and $25 charges willy-nilly while the general public votes with its feet, and it's all reflected in the industry's overall revenue decline.

Fee-charging airlines, of course, consider that argument specious. "Is this a joke?" asked one spokeswoman for a large U.S. airline. "I like to compare Joe's columns to talk radio," says another. "If the host doesn't come up with a strong, polarizing statement on one side or the other, no one cares and no one calls in."

In fairness to the legacy carriers' position, the traffic falloff comes amid a deep, brutal recession. U.S. Corporations have not returned to their traveling ways. The biggest airline, Delta (DAL), saw traffic slip 5% on its mainline operation, while the airline trimmed the total number of seats it flew by 5%. American's (AMR) traffic fell 2.6% domestically, while capacity was down 6.9%. US Airways' (LCC) traffic was down 6.8% domestically, on a 5.9% drop in capacity. United's (UAUA) North American traffic fell 6.1%, on an 8% capacity drop.

Business travelers are staying put

It is inaccurate to lump the flying public into a homogenous mass. People who fly week-in, week-out and have bulging mileage balances are largely exempt from bag fees. Those who fly occasionally for their work likely just put the fees down as reimbursable expenses. People who fly once or twice yearly may grumble but pay up anyway, although they may contemplate another carrier next time. American, the No. 3 U.S. carrier by passenger count, says the percentage of customers who don't check a bag—about half—has not changed since it added a $15 charge in June 2008. "The bag fee is one component" of traffic performance, says Christopher White, a spokesman for AirTran Airways (AAI), which assesses a $15 fee for the first bag. "The bag fee is not the totality of the story."

What's more, a shift in market share by itself does not necessarily concern airline executives: If a price-sensitive college student or a grandparent on a fixed income books elsewhere because of baggage fees, the legacy carrier loses what is likely an unprofitable customer. Think of the cable company or wireless provider that culls unprofitable subscribers. There's no evidence that Southwest or JetBlue have yet siphoned off significant numbers of business travelers—the customers for whose lucrative trade airlines compete viciously—and most analysts consider that prospect unlikely.

Still, all airlines try to mitigate fallout from the new fees and they have been pleased that consumers haven't revolted much. "Change is hard," US Airways told workers in its Oct. 8 employee newsletter. "When airlines first introduced charges for checked bags and a la carte-style pricing, customers resisted the change. Now, with the majority of major airlines collecting these fees for more than a year, customers are less likely to complain to the DOT."

But a larger question persists: Is the public forming a general perception that it will be treated marginally better by a Southwest or JetBlue than by a legacy carrier, with luggage fees serving as the first measure of customer service? It's not a simple question to answer, and a busy month for two airlines is hardly definitive. But Southwest says it won't budge on bag fees—even if much of Wall Street remains skeptical. Says Krone: "If we're trying to get people to travel, we should probably let people take their suitcase."

Bachman is deputy news director for BusinessWeek.com.