One way or the other, baggage fees pay off

United Airlines and Southwest Airlines likely will earn higher profits this year despite charting different courses on a key issue to their passengers – how much to charge them for services beyond a seat on the plane. Both airlines are strong players in the Houston market and are seeing a recovery in demand compared to last year. But United typically charges its passengers for extras including checked baggage, and Southwest doesn’t.

Executives of both carriers said what they’re doing is working.

“We’d be having a great year if it wasn’t for fuel prices,” Southwest Airlines CEO Gary Kelly said in an interview with the Chronicle this week.

Dallas-based Southwest is the largest carrier at Hobby Airport, with 133 daily departures out of Houston.

Chicago-based United Continental Holdings operates its largest hub in Houston with 620 daily flights out of Bush Intercontinental Airport on its United and Continental Airlines subsidiaries. Those carriers merged last year but are flying as separate airlines until the Federal Aviation Administration approves a single operating certificate.

This year they will take in $2 billion, about $16 from each passenger, in ancillary revenues for passenger extras, said Jim Compton, the company’s chief revenue officer. He spoke at a Houston Strategy Forum luncheon on Thursday.

In the past few years, as fuel prices have escalated, many airlines began charging fees for checked bags, meals and reservation changes.

United officials say many passengers don’t check bags, and in the past those customers essentially subsidized ones who did use the bag service.

Compton said passengers now can tailor their own flight experience, deciding themselves whether to check bags, buy meals or pay for on-board entertainment.

“It’s all about choice, to give people choices to check bags and not check bags,” Compton said. “Is it a way to drive revenue? Absolutely.”

On the opposite end of the spectrum, Southwest heavily promotes that it doesn’t charge fees for bags or for changing reservations.

“I’ve got to believe there’s a lot of people who come to Southwest and may not shop anywhere else because they know we don’t nickel and dime them,” Kelly said.

He said some passengers won’t factor in the ancillary fees, but if just 5 percent of airline passengers buy a ticket based on the airline’s fee policy, “that will more than pay for charging for bags,” said Kelly, who visited Houston on Wednesday to celebrate the airline’s 40th anniversary.