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Southwest’s AirTran to Keep Fees Three Years After Merger

Southwest Airlines Co. (LUV), the only major U.S. carrier without bag-check and rebooking fees, will keep those charges at its AirTran Airways unit into 2014, three years after the two combined.

That’s the target date to fully integrate AirTran into its Dallas-based parent, and the fees will stay in place until then, Chief Executive Officer Gary Kelly said today in an interview.

Retaining the charges means more revenue for Southwest, the biggest discount airline. AirTran collected $166.6 million in baggage and change fees in 2011’s first nine months, according to the U.S. Bureau of Transportation Statistics. The total doesn’t include fees to cancel a flight, secure a specific seat, upgrade to business class and buy tickets by phone.

“AirTran generates revenue its way; Southwest does business in a very different way,” Kelly said in an interview. “Customers understand it is a different brand with a different package. We have said all that will be converted over time. It’s not an issue.”

Southwest rose 4.3 percent to $8.23 at the close in New York, after posting a first-quarter loss that was narrower than analysts projected. It was the largest daily gain since Nov. 30.

The $1 billion cash-and-stock acquisition of AirTran Holdings Inc. in May 2011 eliminated a discount competitor and offered access to Atlanta, the smaller airline’s biggest hub and the only major U.S. market that Southwest didn’t serve.

Photographer: Matthew Staver/Bloomberg

Gary Kelly, president and chief executive officer of Southwest Airlines. Close

Gary Kelly, president and chief executive officer of Southwest Airlines.

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Photographer: Matthew Staver/Bloomberg

Gary Kelly, president and chief executive officer of Southwest Airlines.

Contrasting Approaches

AirTran’s fee structure, two-class cabins and a jet fleet with two plane types contrasted with Southwest’s strategy to shun such charges, offer one class of service and rely on a single kind of jet -- Boeing Co. (BA)’s single-aisle 737. AirTran flies those planes along with the smaller 717 model.

Kelly had said in May that he expected no changes for “some months” in operations at AirTran. A spokesman, Brad Hawkins, said today that Southwest expects AirTran’s fees, and its brand, will have disappeared by the end of 2014. Southwest has made ridicule of competitors’ fees a staple of its television advertising.

“How do you recover the fees AirTran charges with the Southwest brand? During the transition, it’s with the code share,” Kelly said today, referring to the industry practice in which airlines put booking codes on each other’s flights. “In the meantime, we have purity between the two.”

Excluding certain items, Southwest’s quarterly loss was $18 million, or 2 cents a share. That compared with a profit of $20 million, or 3 cents, a year earlier. The deficit was narrower than an average 5 cent-a-share-loss from 15 analyst estimates compiled by Bloomberg.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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