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Is Southwest's "Bags Fly Free" Policy Hurting on-Time Departures?

By Daniel B. Kline – Aug 25, 2016 at 9:32AM

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A new study looked at the impact of airlines not charging for checked bags and whether the flights take off as scheduled.

Southwest Airlines' (LUV 1.53%) most customer-friendly policy may be causing the airline to have fewer on-time departures than some of its rivals.

Unlike all other major air carriers, Southwest lets passengers check up to two bags for free. That's a pro-consumer policy, but it may have an unintended negative effect, according to a new study published in the journal Management Science.

The research looked at roughly 9 million domestic flights between May 2007 and May 2009, the time when most domestic carriers began charging for checked bags due to rising fuel prices and a difficult economy. What the researchers discovered is that the airlines that added charges for checked bags were able to take off on time more consistently.

"We find that the airlines that began charging for checked bags saw a significant relative improvement in their on-time departure performance in the time periods after the baggage fees were implemented," the researchers wrote in a summary of their work.

The news, however, was not all bad for Southwest.

"Surprisingly, we also find that airlines that did not charge for checked bags also saw an improvement, although not as big, when competing airlines flying the same origin-destination city markets implemented the fees," they wrote. "The improvement in on-time departure performance was the largest for flights during peak evening departure time blocks."

Southwest does not charge baggage fees. Image source: Bill Abbott, Flickr.

Why does charging for bags matter?

Aside from the obvious profit motive, airlines began charging for checked bags as a way to reduce the amount of luggage on planes. The change in policy both forced people to carry on more bags and to fly with less luggage overall, according to a Dallas Morning News story on the research.

The study factored out more than a dozen issues, including weather, airline, aircraft type, and passenger loads to isolate the effect that the bag fee policies had on on-time departures. Ultimately, the report concluded that after most airlines enacted fees for the first checked bag, average departure times for those carriers improved by two minutes.

All airlines, including Southwest, saw improvement in their departure times, but the no-fee carrier improved less than its rivals.

"There's less burden on the system because passengers changed their behavior," Mazhar Arikan, a business professor at the University of Kansas who co-authored the study,  told the Dallas Morning News. Fewer checked bags helped streamline the baggage handling process, summed up the Consumerist

Is this a problem for Southwest?

Although Arikan noted that even the small difference in departure times potentially costs Southwest millions each year, the airline seems willing to forgo that in favor of maintaining its customer-first policies.

"Our customers tell us they enjoy our transparent and fair pricing and we consider 'Bags Fly Free' a cornerstone of the Southwest hospitality we offer customers each day," Steve Hozdulick, Southwest's managing director of operational performance, told the Dallas Morning News. "We don't view checked bags as a significant detractor from our overall on-time performance when weighed against the baggage convenience we offer our customers."

Even though baggage fees earned the airline industry $3.8 billion in 2015, Southwest seems unwilling to change its policy, which makes sense given that its corporate identity has been built around not charging the same fees as its rivals.

"We have no thought of charging for bags," Southwest CEO Gary Kelly said during the company's Investor Day presentation in June. "We've got a really good thing here and we need to be really thoughtful about how we tinker with it."

Daniel Kline has no position in any stocks mentioned. He wrote this story while at the airport waiting to board a Southwest flight. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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