A tale of two CEOs – Southwest, Spirit Airlines

(Originally published April 20, 2010)

“It was the best of times, it was the worst of times. It was the age of wisdom, it was the age of foolishness. It was the epoch of belief, it was the epoch of incredulity.” Those, of course, are the opening words of Charles Dickens’s A Tale of Two Cities. They also set the tone for a comparison between Southwest Airlines CEO Gary Kelly and Spirit Airlines CEO Ben Baldanza.

The two men looked at your suitcase. One of them, Kelly, saw an opportunity to keep the faith with his customers by pledging not to charge passengers to check bags. The other, Baldanza, saw another way to make more money by charging, not only for checked bags, but also for the bag you lug with you onto his airplanes. Beginning in August, Baldanza’s Spirit Airlines will charge you up to $45 to carry a bag onto its planes.

To be fair, Baldanza says that Spirit will lower airfares and lower fees for checked bags. Also, to be fair, Spirit is among the nation’s lowest-cost carriers, and it actually has seen its bookings increase since it announced its new policy. Baldanza believes the new policy will save time for passengers, who won’t have to suffer through the delays caused by people pulling unwieldy bags out of overhead bins. He also says it will cut operating costs by shaving five minutes off the time each plane stays at the gate. That’s an added 15 hours of flying time for the entire fleet each day, Baldanza says.

The fear is that the line has been crossed and that despite their pledges, other airlines eventually will charge for carry-on luggage with no fare or fee reductions in other areas. It happened a few years ago when Spirit became the first airline to charge for checked luggage.

Also, there’s no guarantee that Spirit won’t eventually let its other fares and fees return to their former levels. Do you really trust that Spirit will hold the line after the spotlight turns away? The jury is out, but my level of skepticism is high.

By contrast, Kelly has refused to charge passengers for checking bags, either overhead or in the belly of a plane. He thought that doing so would expose employees to customer wrath for violating the essence of Southwest. Even though Wall Street analysts called him on the carpet for ignoring an obvious revenue source, he stuck to his guns.

Kelly’s decision has paid off. He estimates that by staying true to its values, Southwest has acquired nearly $1 billion in market share, attributable in large measure to his decision not to charge baggage fees.

That’s as clear an example as I know of a CEO’s standing by his customers, championing his company’s core values and scoring a marketplace win as a result. That’s true leadership, and it’s why Southwest has become my favorite airline.