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Southwest CEO: Free Bags = $800 Million

DALLAS (TheStreet) -- Southwest (LUV) says its strategy of eschewing fees for baggage handling and other amenities has boosted revenue by nearly $800 million annually, CEO Gary Kelly said.

Southwest has seen a market share shift of roughly one percentage point in response to its "immensely successful 'bags fly free' advertising campaign, in a time when we are actually reducing our capacity and the domestic market is actually shrinking," Kelly said at an investment conference. With the domestic air travel market worth about $80 billion to $90 billion annually, "a market share shift like that has a very significant positive effect for Southwest," Kelly said.

Southwest spokeswoman Linda Rutherford noted the carrier's market share gains result not only from the bags fly free campaign, but also from being a low-fare carrier in a recession and from competitors' capacity reductions. Not charging for bags reinforces Southwest's image as a low-fare leader, Kelly has said.

Other airlines have said that as they implement charges for baggage handling and other services, they have been unable to discern any resultant shift to Southwest. Last month, US Airways (LCC) CEO Doug Parker told reporters in Charlotte that passengers may be avoiding multiple carriers at imperceptible rates, which in combination create a perceptible gain for Southwest.

Kelly said Southwest expects to be profitable in the fourth quarter. He said the carrier is benefitting from growth in select markets, including Denver and Saint Louis. However, he said he has seen no improvement in business travel. "I don't think it has gotten worse over the last several months, (but) I am comfortable in telling you it still lags," he said. "I am not expecting a rebound in business travel in 2010."

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