Southwest Airline's Kelly calls on competitors to increase bag feesNewsBy Dennis Schaal | January 21, 2010Share This article was originally published on Southwest Airlines chairman and CEO Gary Kelly says he'd welcome the prospect of other airlines stepping up their bag-fee increases because they have provided impetus to Southwest's market-share gains."Let them charge $100 for bags," Kelly says. "We'll have 100% load factors."Speaking to analysts Jan. 21 after the airline recorded $116 million in profits for the fourth quarter, Kelly notes that overall the U.S. domestic airline market is not growing, yet Southwest picked up 1% in market share, which he labels "huge," on increased passenger traffic despite a capacity cut of 8%.He credits the market share gains to Southwest's low-fare brand marketing focus, including its "Bags Fly Free" campaign, which helped fuel about a 10% increase in advertising spending."We are not going to be charging for bags," Kelly says, flatly.But, what the casual observer might miss in all of Southwest's "Bags Fly Free" marketing is that the airline indeed has an ancillary revenue strategy and took in almost $25 million in incremental revenue in the fourth quarter from EarlyBird Check-In, a new pet fare, an unaccompanied minor fee, and excess and overweight bag fees. EarlyBird Check-In accounted for some $13 million of the almost $25 million in the fourth quarter.Looking ahead, Kelly sees a "very significant" opportunity for ancillary revenue in revamping the airline's Rapid Rewards frequent flyer program, which has under-performed competitors' programs.Kelly says Southwest understands the deficiencies of the current program and will have fixes in place by 2011. The strategy, he says, will be to make Rapid Rewards members "stickier" -- i.e. get them to fly Southwest more often -- and to incent them to use the Southwest Airlines credit card more frequently.In other news, Southwest Airlines CFO Laura Wright says improvements to Southwest.com have spurred higher better look-to-book ratios and the booking of higher average fares. Further improvements to hotel and car rental offerings also are looming on Southwest.com, she adds, and they represent another significant opportunity to increase ancillary revenue.