Southwest Airlines revealed on Tuesday that it will start charging for checked luggage on most fare types, marking the end of its once distinctive “bags fly free” policy.
This new policy, effective May 28, signifies a significant change in the airline’s business strategy amid ongoing financial struggles, as reported by Reuters.
Historically, the Texas-based airline has distinguished itself by allowing passengers to check two bags for free—a rare offering within the airline sector. This policy helped the airline maintain its unique position for more than five decades, as it was the sole major U.S. carrier that did not impose fees for checked baggage. However, faced with financial difficulties, the airline is now reversing this customer-friendly approach.
Additionally, last year, Southwest announced the discontinuation of its open seating policy, which had been a core element of its brand for over 50 years. These changes are anticipated to affect the airline’s reputation and may lead to a loss of its loyal customer base.
What Is The New Policy?
According to the new baggage policy, passengers with the highest loyalty status—A-List Preferred, who pays for the most premium fares—will continue to check two bags for free. Meanwhile, those in the A-List group will receive one complimentary checked bag.
Passengers holding Southwest’s co-branded credit card will also benefit from one free checked bag. However, most other travelers will now incur charges for their first and second checked bags.
Pressures from Investors
The move to eliminate the complimentary checked bag policy follows months of pressure from Elliott Investment Management, an activist firm that acquired a stake in Southwest last year, according to CNBC.
The firm has been advocating for the airline to implement changes aimed at enhancing its financial performance, including cost reduction and revenue increase.
Southwest CEO Bob Jordan noted that the airline’s latest booking data indicates diminished benefits from the free bag policy.
“We handle nearly twice the luggage compared to our competitors, which incurs substantial costs,” Jordan remarked.
Despite projections that charging for checked bags could yield up to $1.5 billion in annual revenue, this shift could also lead to a $1.8 billion loss in market share, according to the company’s findings.
While baggage fees amassed over $7 billion in revenue for major U.S. airlines in 2023, Southwest itself only reported $73.4 million, as per the Bureau of Transportation Statistics.
Cost-Cutting Measures to Boost Profits
As part of a larger initiative to strengthen its financial landscape, the airline has also initiated employee layoffs for the first time in its history. Furthermore, the company introduced a new basic economy fare and halted its strategies against fuel price fluctuations, which led to a $150 million loss last year.
Jordan anticipates that the revised baggage policy will drive an increase in sign-ups for its co-branded credit card and broaden its market reach by offering tickets on platforms such as Google Flights and Expedia.
His objective is to elevate Southwest’s operating margin to at least 10% by 2027, up from a mere 2% expected in 2024.
In the meantime, Southwest’s policy adjustment has already drawn the attention of its rivals. Delta Air Lines president Glen Hauenstein pointed out that some of Southwest’s customers are now potential targets for competition.
United Airlines CEO Scott Kirby characterized the change as “the slaying of a sacred cow,” suggesting that it will primarily affect lower-paying passengers. “I see this as significant because it indicates a shift towards a more financially focused and results-driven airline than ever before,” he commented.
