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NBTA's Airline CEO Panel on Travel Outlook and Bag Fees

For me, the airline CEO panel is one of the most anticipated parts of NBTA each year. Though exciting news rarely comes out, the Q&A usually finds some disgruntled travel managers really challenging the CEOs and that's excellent. Last year it was on name changes, but this year we didn't see the same fireworks.

I'm breaking this post into two parts. Today I'll highlight the discussion on the future outlook and bag fees. On Monday, I'll cover Continental 2816 and more.

This year's panel had Southwest CEO Gary Kelly and Continental CEO (for a couple more months) Larry Kellner. That's probably why it didn't escalate into a shouting match - these are two generally well-respected airlines. Here are some of the highlights from the conversation moderated by Peter Greenberg (who has lost a TON of weight).

The conversation started with the outlook going forward. Gary said that "After having June results and the full month of July, things aren't getting worse and they actually looked a little better in July." Larry agreed, "We're seeing primarily the same thing."

But Larry and Gary did talk about the some differences between the two airlines.

Larry: During the summer we saw what Southwest saw - huge load factors and plenty of leisure demand. . . . It's not a load factor issue, it's a pricing issue. . . . Business travel has traditionally start back up the second week of September . . . [which is ] the real test for business traffic. . . . We see more use of video and web conferencing than we've ever seen. It works great for formal meetings but not for one-on-one meetings, informal meetings.

Gary: We are less dependent on the business travel segment.

Then the obligatory discussion of bag fees came about, but this time it was actually a very candid and interesting discussion.

Larry: We looked at the marketplace and said "can we see share shift?" We didn't. Second, we tried a small fare premium and it didn't work because our results were pushed down in the online travel agents. I personally hate the fee, but less than 20 percent of our corporate travelers pay the first bag fee [because of elite status, credit card holding, etc].

Peter: Gary, you're leaving a lot of money on the table.

Gary: [emphatically] I don't think so. [crowd goes wild] What we know is that customers hate them. Our people would hate the bag fees. There are about 70 million bags checked. That's about half a million in revenue which is 5 percent of our total. So, if 5 percent changed their behavior, that's it. If you look at Southwest's revenue performance compared to the rest of the group, we're good. Our approach works for Southwest. There's no evidence to the contrary that we're leaving money on the table.

Peter then wanted to know if Gary would promise no bag fees considering that Delta CEO Richard Anderson said the same thing last year and promptly reversed course. Gary: I'll say we won't charge a bag fee in 2009 but we'll keep studying it.

The answer was somewhat hesitant, to be truthful. I personally think a second bag fee is a no-brainer for them and I wouldn't be surprised to see that come to fruition.

Later in the Q&A, the issue of bag fees came up again and Larry and Gary both gave us an idea of how they decide to charge fees.

Larry: If we have something used by more than 20 percent of our customers, we want to put it in the base fare. That's why the second bag fee was easy - only 16 percent checked a second bag but it was hard for the first since 50 percent check.

Gary: If we're going to charge a fee it needs to be acceptable to the marketplace. If you pay more money for your seat, you ought to get more for it.

I'll have my coverage on the rest of the panel on Monday. If you just can't wait, you can watch the entire video yourself.

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