Bags and relationships fly free.

• Author: Hall, Robert
• Position: Southwest Airlines Co

DON'T YOU JUST LOVE IT WHEN A COMPANY LIVES UP TO ITS BRAND? When you truly know who you are, the marketplace, competitors and events sooner or later will provide special windows to reveal and reaffirm your identity. Southwest Airlines recently discerned just such an opening. Yet as is often the case, it would have been very easy to miss the real opportunity because of the allure of easy, new fee income.

The background story: A number of airlines began to charge for bags as a source of additional revenue. The business case was compelling when viewed through the prism of math and accounting. Southwest could earn an estimated additional $300 million in annual recurring revenue without undermining a core part of the Southwest brand, their low-cost fare structure. While customers might not like the fees, they could choose to fly with or without bags and avoid the charge if they so elected. Fewer bags meant less labor and fuel cost. The competition was employing the fees so there was no competitive downside with other airlines. Let's see: more revenue, no loss of market share, less cost and customer choice. What's not to like?

Southwest chose to forego the bag fees. They ran ads headlined, "Bags Fly Free."

Actually, for Southwest this straightforward decision was not so straightforward. As a public company it was under immense pressure from Wall Street to take this proposition and the baggage fees and run. Dallas Morning News business columnist Cheryl Hall wrote of their view of Southwest CEO Kelly: "Wall Street analysts nailed him as irresponsible, nuts, naive or all of the above."

Customers are not nickel-and-dimed

Yet Kelly saw the opportunity not as a revenue grab but as an employee, customer and brand-building opportunity that, if handled correctly, could grow revenue. Southwest is legendary for the esprit de corps of its (yes, unionized) employee base. After all of these years this group still makes flying fun--even as a discount airline.

As Hall wrote, Kelly worried about employees having to face the wrath of customers for something they would feel--he felt--went against the essence of Southwest. On the surface, bag charges simply look like a way to charge more for the same old service. But strong relationships are eroded when customers get nickel-and-dimed. It might be billed as a choice, but for passengers traveling overnight, traveling without a bag is hardly feasible, so not really a choice. At a deeper level separating the "fare to...