Bag fees: Southwest CEO warns, ‘Never say never’

Facing ever-increasing competition, Southwest Airlines could change its policy of not charging baggage fees at some point, CEO Gary Kelly said on CNBC Thursday, right after the company reported better-than-expected earnings.

"There are no plans to charge for bags in 2013," he said in a "Squawk Box" interview, but added, "Never say never … the customers will tell us whether they would prefer to have extra fees or whether they would prefer to have everything bundled."

Kelly added that the industry is facing pressure due to higher fuel costs, which weighed on fourth-quarter profits. Southwest did earn $0.09 a share, excluding one-time items, a penny higher than estimates. Revenue of $4.2 billion was just shy expectations. It also saw higher operating expenses and a decline in passenger traffic.

The industry landscape is changing and that's a challenge, Kelly said. "Over the last 10 years … you do have low-cost carriers entering the market."

"Every single legacy carrier has gone through bankruptcy. Gotten their costs down significantly," he said.

Kelly also said the industry is not growing. "The capacity in 2012 was actually down again. And that's what I would expect the [domestic] industry to do … here again in 2013."

—By CNBC's Matthew J. Belvedere; Follow him on Twitter @Matt_SquawkCNBC

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