NEW YORK (TheStreet) -- It doesn't matter to S&P Capital IQ airline analyst Jim Corridore that Southwest (LUV) CEO Gary Kelly opposes bag fees. Corridore said Southwest, like JetBlue (JBLU) , needs bag fees but for different reasons.
In a recent note, Corridore wrote that with Robin Hayes set to replace Dave Barger as CEO of JetBlue, "we think a new CEO will adopt more revenue generating policies including more seats on board and bag fees." Corridore maintains a "strong buy" on JetBlue shares.
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In an interview, Corridore added that Southwest should add bag fees too. In that, Corridore contradicted what Kelly told reporters at Southwest media day in Dallas on Sept. 8.
Asked whether Southwest might end its "Bags Fly Free" program, Kelly responded: "That debate's long ended.
"You see the results that we have, which are affirmed by all the research that we do in marketing that say if we charged for bags, the defection rate of our customers would be such that it would more than wipe out the bag fee revenue, and by close to $1 billion, which interestingly enough from a macro perspective, was about the market share value increase we got once the rest of the industry began starting for bags," Kelly said.
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Corridore, however, called the revenue from first bag fees "low hanging fruit" and said, "It wouldn't lead to one passenger defection ... I don't think they are generating any market share advantage (with Bags Fly Free.)"
Nevertheless, Corridore called Kelly "a great executive who runs a great airline." He said Southwest succeeds because "it is the largest domestic airline and it flies where customers want to go with great customer service and low fares." He noted he has a "buy" on Southwest.
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As for JetBlue, Corridore said, it's "significantly undervalued relative to peers." He advocated that besides adding bag fees and adding seats in order to boost revenue per available seat mile, the carrier should consider returning to its roots and taking advantage of its JFK and Boston Logan hubs by "serving underserved niche airports with low fares, which would stimulate demand."
"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."
You can view the full analysis from the report here: LUV Ratings Report