Southwest Airways’ plan to start out charging for checked baggage could 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 will likely be “good for everybody” — referring to the bigger U.S. airline trade the place bag charges are commonplace.
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Dallas-based Southwest will start charging checked bag charges on new bookings from Could 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 added baggage. The one vacationers exempt from Southwest’s new charges are its top-tier A-Checklist Speedy Rewards frequent flyers, vacationers who buy full Enterprise Choose fares and holders of its cobranded bank card.
There isn’t any phrase but on whether or not Southwest will add carry-on bag charges, too.
As lots of Southwest’s standout options are discontinued or diluted — and the airline extra intently 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 “baggage fly free” on Southwest flights has been central to its advertising for practically twenty years, particularly as checked bag expenses turned commonplace at competing airways. To this present day, it stays a big differentiator for the airline.
“There is a very excessive consciousness of our baggage fly free coverage,” Ryan Inexperienced, the chief transformation officer at Southwest, mentioned in September. “It’s far and away the highest function that differentiates Southwest from our rivals, and it is without doubt one of the prime standards in why clients select Southwest Airways.”
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After finding out the market, Southwest discovered that bag charges would end in “an excessive amount of defection in future flying, even in markets the place we’re sturdy, that greater than offset the ancillary income we might earn from bag charges,” Inexperienced continued.
That was among the many the reason 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 extra money out of consumers.
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Southwest CEO Bob Jordan sang a really totally different tune on Tuesday.
“Precise buyer reserving conduct by means of our new reserving channels didn’t present that we have been getting the identical profit from our bundled providing with free baggage, 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 guide its least expensive fares, often known as Wanna Get Away.
Investor pushed initiatives
Southwest’s adjustments are pushed, primarily, by strain from buyers. After taking a roughly 11% stake within the airline final 12 months, 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 income and elevating its share worth. 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 just isn’t altering,” Jordan mentioned in response to a query on tradition. He added that, for instance, assigned seating is one thing staff need whereas acknowledging that the layoffs have been “very troublesome.”
Elliott raised its stake in Southwest to just about 20% in February.
Change is coming: Southwest Airlines reveals new boarding and seating process
Southwest’s future
The query within the trade now’s, “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 customarily quirky employees. What number of of these flyers bounce ship as Southwest turns into, basically, like all of its rivals is an open query.
Kirby mentioned Tuesday that he thinks any traveler share shift away from Southwest is just prone 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’ll know the end result quickly. The adjustments at Southwest already started earlier this month with new Rapid Rewards earning rates; redemption charges will change later this month. Bag charges start in Could. 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 perhaps a touch of irony.
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