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Why Southwest Should Consider a Change Fee

On Friday, Southwest announced it was adding a couple fees and increasing another. For most airlines, a Friday that sees a new or increased fee would just be called “Friday” but for Southwest, it creates some shockwaves. These fees are actually pretty friendly, and I can’t imagine anyone complaining, but the attention paid to this move shows just what kind of predicament Southwest finds itself in. And I’ve got a controversial suggestion.

But first, let’s talk about the three changes made on Friday. They are:

  • Small dogs and cats will be allowed onboard for the first time for $75 each way (American charges $100)

  • Unaccompanied minors (kids between 5 and 11 traveling without an adult) used to fly without an extra charge, but now they’ll have to pay $25 each way (American charges $100)

  • The third checked bag will now cost $50 instead of $25 (the first two are still free)

Like I said, these are hardly offensive charges. The pet fee is great, because it’s an additional option for those with small animals that wasn’t there before. The unaccompanied minor fee also makes sense. There is a cost to providing extra attention to children traveling alone, and $25 seems quite fair. And charging $50 for a third bag? Please. Anyone who is offended by that has never flown another airline and probably packs too much anyway.

These fees, however friendly they are, aren’t going to actually generate a ton of money for the airline. Southwest has made it clear that it needs to increase its revenues. In a rare corporate-speak moment, CEO Gary Kelly wrote in a blog post, “it is our fiscal responsibility to our Employees, our Customers, and our Shareholders to maximize our existing and potential revenue opportunities.”

The key for the airline now is to find ways to add fees that it thinks customers will find to be fair. In that same post, Gary says, “We truly believe in setting the right Customer expectation and not charging for those amenities that a Customer would ‘expect’ to get for free.” As a traveler, I appreciate that. But is there any low-hanging fruit that they could tweak to have a big revenue impact?

Yes. The change fee, or lack thereof.

I’m fairly sure that anytime the words “change fee” are put together, a collective gasp wafts out of Southwest’s headquarters. Southwest doesn’t do change fees, but I would argue that a change fee is in line with their strategy.

What traveler expects not to pay a change fee? A frequent Southwest traveler, yes, but not the rest of the world. Think about a $25 change fee. There are limited costs to Southwest for someone changing their itinerary, especially at the last minute. So would anyone really balk at a $25 change fee? Or what if you only charged the fee for changes within 7 days? The cost to the airline is the inability to resell that seat if it happens to close to departure. That seems like a fair fee to me.

Anything above $25 is too much for now, and certainly the $150 fee most airlines charge makes me cringe. But a $25 fee is enough for Southwest to be able to increase its revenues while still enabling customers to make relatively easy and inexpensive changes. I think this fits within what they’re trying to do.

What do you guys think?

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