Southwest Airlines has decided to implement a fee for checked baggage, moving away from a policy that has set it apart from its competitors for many years. This shift marks a significant change for Southwest, known for its allowance of two free checked bags per passenger, a cornerstone of its previous marketing strategies.
Executives have declared that the fee will apply to passengers who have not achieved high tiers within the airline’s Rapid Rewards loyalty program, have not purchased business class tickets, or do not possess the airline’s credit card. Although the airline has not yet disclosed the specific fee amounts, the new policy is slated to commence for flights booked from May 28 onwards.
CEO Bob Jordan highlighted the airline’s potential to enhance its service offerings and appeal to new customer segments while striving to restore profitability expectations for the company and its shareholders. This initiative follows closely on the heels of another strategic shift by Southwest: abandoning its long-standing open-seating policy, transitioning to assigned seating starting next year.
Currently under financial strain, Southwest Airlines has been nudged by activist investors to enhance profitability metrics. The airline narrowly avoided a proxy battle in October, reaching an accord with Elliott Investment Management, which resulted in Elliott gaining board seats.
In a related cost-cutting maneuver, the airline announced it would lay off 1,750 employees, about 15% of its corporate workforce, representing the first significant downsizing in its over 50-year history. The reductions are intended to create a more efficient and agile organizational structure.
Encouragingly, the airline’s stock price witnessed a rise of more than 9% on Tuesday. In the past, Southwest has been distinguished by its policy of allowing bags to fly free, a feature highly touted by executives and attractive enough to set the airline apart from its U.S.-based competitors. Despite the anticipated income generation—estimated at $1.5 billion annually from bag fees—the company predicted an overall loss of $1.8 billion in business from customers drawn by the initial perk.
Even with these changes, certain customers will still enjoy the free baggage perk: A-List preferred Rapid Rewards members and Business Select fare passengers can continue to check two bags for free, while A-List members, select customers, and those with Rapid Rewards credit cards will retain some free checked bag benefits.
However, travelers not fitting into these specific categories must anticipate paying for their checked baggage, aligning with Southwest’s introduction of a new basic fare for its most affordable tickets.
For customers like Dorothy Severson, the shift away from free checked bags is disappointing. While awaiting a flight at Chicago Midway International Airport, she remarked, “I would rather have the free checked bags, that’s for sure.” For her and many others, this amenity had been a primary factor in choosing Southwest.
This new pricing structure has provided competitors with opportunities to capture those customers who selectively chose Southwest for its baggage policy. Speaking at a conference, Delta Airlines President Glen Hauenstein noted that these customers are now potential targets for rival airlines.
Moreover, to remain competitive in a challenging economic environment marked by trade tensions and waning corporate optimism, maintaining affordability in travel costs is becoming increasingly critical. Delta Airlines has already revised its quarterly earnings and revenue expectations, attributing the adjustment to declining consumer confidence and demand. Similar trends have been noted across the industry, with significant declines in share values for major airlines like United, JetBlue, and American Airlines.
In addition to the adjusted checked baggage policy, Southwest has planned further enhancements, including charging for additional legroom and introducing red-eye flight options.
