Southwest Airways’ plan to start out charging for checked luggage might not solely be good for its backside line but in addition for different carriers, United Airways CEO Scott Kirby mentioned.
“It is the slaying of the sacred cow,” Kirby mentioned at a J.P. Morgan investor convention on Tuesday, hours after Southwest unveiled the new fees.
He added that he believes the transfer can be “good for everybody” — referring to the bigger U.S. airline business the place bag charges are normal.
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Dallas-based Southwest will start charging checked bag charges on new bookings from Might 28. Whereas it didn’t disclose the price of the brand new charges, most U.S. airways cost $35 for the primary checked bag and extra for extra baggage. The one vacationers exempt from Southwest’s new charges are its top-tier A-Checklist Fast Rewards frequent flyers, vacationers who buy full Enterprise Choose fares and holders of its cobranded bank card.
There is no such thing as a phrase but on whether or not Southwest will add carry-on bag charges, too.
As a lot of Southwest’s standout options are discontinued or diluted — and the airline extra carefully resembles the rivals it as soon as claimed to be totally different from — it stays to be seen if loyal passengers will stick round.
A tsunami of change
The magnitude of Southwest’s new checked bag charges can’t be understated. The concept that “luggage fly free” on Southwest flights has been central to its advertising and marketing for almost 20 years, particularly as checked bag costs turned normal at competing airways. To today, it stays a major differentiator for the airline.
“There is a very excessive consciousness of our luggage fly free coverage,” Ryan Inexperienced, the chief transformation officer at Southwest, mentioned in September. “It’s far and away the highest characteristic that differentiates Southwest from our opponents, and it is without doubt one of the high standards in why prospects select Southwest Airways.”
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After finding out the market, Southwest discovered that bag charges would lead to “an excessive amount of defection in future flying, even in markets the place we’re robust, that greater than offset the ancillary income we would earn from bag charges,” Inexperienced continued.
That was among the many explanation why, at its September investor day, Southwest executives mentioned the airline wouldn’t add bag charges even because it adopted assigned seating, added premium seats and in any other case sought methods to wring more cash out of consumers.
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Southwest CEO Bob Jordan sang a really totally different tune on Tuesday.
“Precise buyer reserving habits by means of our new reserving channels didn’t present that we had been getting the identical profit from our bundled providing with free luggage, which has led us to replace the assumptions,” he mentioned on the airline’s observations after listing its flights on popular travel search websites, together with Expedia and Google Flights.
Southwest’s chief working officer, Andrew Watterson, added that the service was “over delivering” to vacationers who e-book its most cost-effective fares, generally known as Wanna Get Away.
Investor pushed initiatives
Southwest’s modifications are pushed, primarily, by stress from traders. After taking a roughly 11% stake within the airline final yr, activist investor Elliott Funding Administration succeeded in gaining six seats on the airline’s 13-seat board of administrators and pushing the retirement of chairman and former CEO Gary Kelly.
Because the board modified, Southwest has targeted on boosting earnings and elevating its share value. The airline made its first-ever layoffs in February when it lower 15% company workforce. Now, with bag charges, it’s reaching deeper into vacationers’ wallets.
“I see very a lot pleasure about our future however the core of who we’re and what we stand for isn’t altering,” Jordan mentioned in response to a query on tradition. He added that, for instance, assigned seating is one thing workers need whereas acknowledging that the layoffs had been “very tough.”
Elliott raised its stake in Southwest to just about 20% in February.
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Southwest’s future
The query within the business now could be, “How a lot change is an excessive amount of change at Southwest?” The airline has a notoriously loyal buyer base that loves its low fares, frequent flights and usually quirky workers. What number of of these flyers leap ship as Southwest turns into, basically, like all of its opponents is an open query.
Kirby mentioned Tuesday that he thinks any traveler share shift away from Southwest is barely more likely to happen on the “margins.” In different phrases, the numbers can be small.
In his feedback on the decision-making behind the brand new bag charges, Jordan implied that Southwest additionally sees a minimal shift in passenger defection.
We are going to know the consequence quickly. The modifications at Southwest already started earlier this month with new Rapid Rewards earning rates; redemption charges will change later this month. Bag charges start in Might. Then, within the third quarter, the airline will start promoting assigned seats and its new premium seats; vacationers will see each insurance policies onboard in early 2026.
“It’s a actually thrilling time at Southwest Airways,” Jordan mentioned with possibly a touch of irony.
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