UPDATE 1-Southwest Air sets new fees, to add $100 mln to revenue

Fri Dec 14, 2012 1:50pm EST

Dec 14 (Reuters) - Southwest Airlines, the discount airline that has heavily promoted its "bags fly free" feature, on Friday said it will implement new fees next year under a plan to raise revenues by $1.1 billion in 2013.

The new fees, including higher fees on excess baggage, are expected to generate about $100 million in revenue next year, Southwest said.

The company, at an meeting with analysts in New York that was webcast, also said it plans to trim 300 positions from its work force by the end of 2013, though there will be no layoffs, as it seeks to double earnings next year from 2012 and meet its target of a 15 percent return on invested capital.

"We're looking for our revenue initiatives to take hold in 2013 in a way that would produce very strong earnings," assuming the economy holds up and fuel prices don't markedly rise, Chief Executive Gary Kelly said.

Dallas-based Southwest has nearly 46,000 workers. The reduction in positions will be made via attrition and by not hiring to fill some positions budgeted for 2013.

The traditional discount leader, Southwest is now finding it must work harder to stay profitable in the face of labor and fuel cost pressures and rising competition not just from legacy airlines like Delta Air Lines, but also from newer carriers with a low-cost focus such as Spirit Airlines.

Southwest's cost advantage compared with rivals "is not as great as it was in 2000 but is still very significant," Kelly said. He said it was "critical" for Southwest to keep its cost advantage, and noted that the company's wage rates were higher than competitors.

The airline, which allows passengers to check up to two bags for free, said it will raise fees on additional bags and on overweight baggage. It will also increase bag fees for AirTran, the carrier it bought last year, and roll out new fees tied to the sale of open and premium boarding positions at airport gates.

Southwest also said it planned a no-show fee for restricted tickets that are not canceled prior to departure.

Of the total revenue gains it expects next year, $300 million would come from the new fees and other moves related to improving operations, the Dallas-based carrier said.

Fees will rise to $100 from $50 for overweight bags and to $12.50 from $10 for early boarding. AirTran bag fees will rise to $25 from $20 for a first checked bag and from $25 to $35 for a second-checked bag.

Last year's Chapter 11 filing by AMR Corp's American Airlines leaves Southwest as the only major U.S. carrier that has not reorganized in bankruptcy.

"We have a reconstituted legacy competitive set," Kelly said. "They are more competitive today than they were in '07, than they were in 2002 by a long shot. Just look at their results."

Shares of Southwest were up 1.1 percent to $10.25 in afternoon trading.

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