Winging It: Thoughts from 2 CEOs on airline changes

A big convention last week in San Diego gave me and 5,000 other people a rare opportunity to hear what the top guns at two major airlines think these days about baggage fees, passenger rights, and other hot industry topics.

The gathering was the National Business Travel Association's annual convention, and the men in the spotlight were Larry Kellner, Continental's chairman and chief executive officer; and Gary Kelly, his counterpart at Southwest.

For more than an hour, Kelly and Kellner answered questions from a moderator and the audience. About 20 percent of those listening were airline customers, the corporate travel managers who each spend millions of dollars with the carriers. The rest were vendors, including airlines, hotel chains, car-rental companies, and technology providers, there to pitch their products and services to the travel managers.

My notes indicate that only twice did anyone interrupt the CEOs with spontaneous applause for something they said. Both times were while Kelly was reiterating Southwest's stance against charging customers fees for checked baggage and other services that once were part of the ticket price.

This was before US Airways and then Continental said last week that they had matched American Airlines' $5 increase in checked-bag fees and a $50 second-bag fee on some international flights. See my blog post for more detail on this: http://www.philly.com/philly/blogs/wingingit/55114127.html

Kelly was skeptical of those who say Southwest is giving up an easy source of revenue by being the only airline left that isn't charging fees.

"I don't think so," Kelly said. "Find me someone here who likes the bag fees. Customers hate them." Besides, he said, Southwest's approach "gives us a unique marketing position."

Analyst Michael Linenberg of Bank of America Merrill Lynch, in a research note published Friday, estimated Southwest's lost revenue from fees would be at least $450 million a year.

Kelly said charging fees would require changes in the airline's operations that could take time to implement and drive away customers who fly Southwest precisely because it has no fees.

But, that said, we haven't heard the last word from Southwest on fees. Kelly told the business-travel audience it won't charge fees "in 2009" while it continues to study the ramifications of its stance.

In an interview Friday, Kelly told me he wasn't trying to be clever by saying the policy was good only for the rest of this year.

"I was trying to put a commitment on some period of time," he said. "But it's not an unlimited, open-ended guarantee that we won't change our mind on that."

Continental's Kellner also said, "I hate the fees," and that his airline hesitated last year when other carriers began adopting them as a way to offset soaring fuel costs.

But Continental followed its competitors' lead after finding it was not gaining market share from those that charged fees, and that fees would mean hundreds of millions in additional revenue at a time when ticket revenue was plunging, he said.

Kellner endorsed one idea that would help travelers: Provide customers a single dollar figure that includes the fare and all anticipated fees at the time of ticket purchase.

That sounds like a great idea to me. But so far, the U.S. Department of Transportation has declined to take an active stance on the industry's fees, saying airline deregulation had removed its power to do much.

The other big topic the San Diego audience wanted to know about was the airlines' position on passenger-rights legislation.

Congress is likely to pass a bill in the fall that would regulate how airlines treat customers during long ground delays, rules that the airlines will have brought on themselves by occasional wretched performance.

Kellner repeated what he had said before about the almost-six-hour stranding Aug. 8 of 47 passengers on a Continental Express regional jet at the Rochester, Minn., airport: "Our performance was unacceptable."

But Kellner was heartened by Transportation Secretary Ray LaHood's statement Aug. 21 clearing Continental and its Expressjet unit of most blame and laying it instead on Mesaba Airlines personnel at the Rochester airport. Mesaba is a Northwest, now Delta, subsidiary. (More on this on my blog: http://www.philly.com/philly/blogs/wingingit/53957094.html.)

Kellner said he wasn't opposed to sensible regulations for keeping passengers comfortable during long ground delays, provided the rules don't compromise safety by requiring something like unloading a plane on the tarmac during a thunderstorm.

On another topic, Kellner and Kelly agreed as well when asked what they expected in the fall in terms of traffic and revenue after a brutal 12 months of recession-induced declines.

"Things aren't getting any worse," Kelly said.

"We do have some sense things are stabilizing," Kellner said.