I can't locate the cost of the side air bag right now, but I can say that your estimate seems a bit high. I do see that the side air bag is part of the seat back assembly, which could be causing the cost to be higher than you'd expect. I don't have a point of reference to share immediately though... The labor should be about 3 hours. My recommendation is to try another dealer - there should be several in your area after all. Call the parts depatment directly to ask the price of the side air bag.
If the parts end up being absurd price wise, you could always try used components. Check with a local salvage yard.