Southwest Airlines has announced a significant shift in its long-standing policy, indicating that it will begin charging customers a fee to check bags.
This decision marks a departure from the airline’s previous practice of allowing passengers to check up to two bags for free, which had been a key differentiator for the budget carrier.
The big picture: The new policy, set to commence with May 28 bookings, applies to customers who have not reached certain tiers of the Rapid Rewards loyalty program, purchased a business class ticket, or hold the airline’s credit card.
- The airline’s CEO, Bob Jordan, emphasized the move as an opportunity to meet customer needs, attract new segments, and achieve expected levels of profitability.
- This shift comes on the heels of other strategic changes, including the impending implementation of assigned seats for flights; a tradition of open boarding being done away with.
- The company’s stock rose by more than 6% following the announcement, suggesting a positive reception among investors.
Driving the news: Southwest’s decision reflects pressures from investors to bolster profits and revenue, as evidenced by a truce with activist investor Elliott Investment Management to avoid a proxy fight.
- Furthermore, the airline has announced plans to eliminate 1,750 jobs, constituting 15% of its corporate workforce, as part of a broader cost-cutting and organizational transformation strategy.
Zoom in: The company’s new bag fee policy represents a significant shift in strategy, notably as it had long been marketed as a key distinguishing feature from competitors.
- While estimating that charging bag fees could generate approximately $1.5 billion annually, the airline anticipates a $1.8 billion loss in business from customers who had been drawn to Southwest because of its generous baggage allowance.
- Despite the new policy, Southwest will continue to offer exceptions to some customers, including Rapid Rewards A-List preferred members and those traveling on Business Select fares, albeit with some limitations.
- The company also plans to introduce a new basic fare for its lowest priced tickets, aligning with the forthcoming change in bag-check policy.
