Disclaimer: I'm a long-time shareholder in LUV.WNMECH said:
As WT frequently points out, WN already gets higher average fares on some of its DAL routes than AA gets on the equivalent routes from DFW. Long gone are the days when Southwest always had the lowest fares. Unbundling bag fees has allowed the legacies to advertise lower base fares than Southwest. Sure, during the Great Recession, Gary Kelly said that "bags fly free" was worth $800 million a year in additional revenue for WN. All the legacies were bleeding money at the time.
Now, the legacies are mostly profitable and all collect huge amounts in checked bag fees. WN, on the other hand, has baked the checked bag fees into many of its fares. WN passengers are frequently paying for checked bags even though there is no itemized fee for checked bags like at the legacies.
As October approaches, and WN hopes to carry the Metroplex business passengers on longer nonstop flights for the first time (anywhere in the country), those business travelers (who almost never check bags) are going to notice the higher fares since many WN fares include the amounts for checked bag fees built-in. How happy will they all be paying for the checked bags they aren't checking? At AA and the other legacies, their elite frequent flyer status exempts them from the bag fees. So in some markets, AA's fares are lower - AA's yield and PRASM is lower, because those numbers don't include the treasure trove of checked bag fees paid by the infrequent travelers - the ones who don't have elite status.
It has to be on the minds of some WN executives. The business travelers Kelly wants to target at DAL next month for long-haul domestic flights are probably all AAdvatage elites. They fly all the time and they never pay checked bag fees even on those rare occasions when they check bags - like family holidays. For one day or two day trips to LAX or SFO or NYC, they fit everything they need in a carryon bag.
And I hope that nobody is so ignorant as to assume that they'll magically begin checking bags when flying WN because "bags fly free." They don't check bags because their carryon has valuable, key, important things in it that they absolutely need for the business trip - often a lot of electronic doo-hickeys and gizmos. They wouldn't check that stuff if the airline paid them $50 per checked bag. The trip is pointless if their bag is lost, misdelivered or pilfered by baggage handlers at the airline or the TSA, both of whom are known to steal from passengers.
"Bags fly free" is great when your target audience is infrequent families on holiday where everyone has two huge checked bags. That ain't the target market next month at DAL. Longhaul flights at DAL are all about the business person toting a briefcase and a rollaboard. Not unlike the typical HOU-DAL or DAL-AUS passengers today. Important people flying on expensive tickets don't give a rat's ass about free checked bags. They don't check bags.
So at some point, Kelly has to decide whether he wants to be the airline of choice for those who simply must pack the kitchen sink every time they travel and choose WN so they can "save" $120 or more per person round trip. Maybe it's time to begin charging them for all that cargo they bring with them.
Like you said - it might be $1.5 billion a year. But if WN matches everyone else on checked bags, some consumers might notice that the fares need to come down since they'll have to pony up the $120 round trip for checked bags. That might reduce the total net gain to WN to something smaller than $1.5 billion. Still a big chunk of change.
. Very good news! 
