Fees, Fees and More Fees?

In a precedent-setting move, Spirit Airlines has announced that they will soon start charging their customers up to $45 for carry-on luggage. Wow!

As fares come down, airlines seem to be compensating by turning bag fees into a veritable industry worth an estimated $2 billion a year, according to the Department of Transportation.

How wise is this move? Not very...



The logic is convoluted. The same airline that has $9 dollar fares is also more than happy to nickel and dime it's customers to make up for the lost revenue? Cheap fares but high fees for everything else means you're not competing on price nor value-add. This makes flying a boring point A to point B proposition, and about as exciting as getting on a crowded city bus.

I like Southwest's strategy much better.

They compete on price, yes, but they have radically changed their operational structure in order to win at that game. Case in point, Southwest doesn't fly everywhere. Instead, they focus on a limited but profitable number of popular airports and destinations.

In addition, Southwest has a fleet of 500 jets and all of them are Boeing 737s. This means that parts and personnel are interchangeable, which leads to high efficiency and much lower operational, maintenance and training costs.

And because the airline was designed from the ground up to compete on price, they've managed to stay profitable, while keeping customers smiling. Bags fly free, customers get to pick their favorite seat, the peanuts and soda are on the house, and the planes arrive on time.

It's certainly not first class, I know, but it's a fun and economically beneficial experience.

The moral of the story...never try to compete on price unless you're ready to walk the talk and still turn a healthy profit.