Southwest Airways’ plan to start out charging for checked luggage might not solely be good for its backside line but additionally 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 brand new charges.
He added that he believes the transfer will probably be “good for everybody” — referring to the bigger U.S. airline business the place bag charges are customary.
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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-Listing Fast 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 “luggage fly free” on Southwest flights has been central to its advertising and marketing for almost twenty years, particularly as checked bag fees turned customary at competing airways. To this present day, it stays a big 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 among the prime standards in why prospects select Southwest Airways.”
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After learning 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 sturdy, that greater than offset the ancillary income we would earn from bag charges,” Inexperienced continued.
That was among the many the 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 shoppers.
Associated: Southwest to launch assigned seats in 2026, will associate with worldwide airways
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 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 itemizing its flights on fashionable journey search web sites, together with Expedia and Google Flights.
Southwest’s chief working officer, Andrew Watterson, added that the provider was “over delivering” to vacationers who guide 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 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.
For the reason that board modified, Southwest has targeted on boosting earnings and elevating its share worth. The airline made its first-ever layoffs in February when it minimize 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 shouldn’t be 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 troublesome.”
Elliott raised its stake in Southwest to almost 20% in February.
Change is coming: Southwest Airways reveals new boarding and seating course of
Southwest’s future
The query within the business 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 usually quirky employees. What number of of these flyers leap ship as Southwest turns into, primarily, like all of its opponents is an open query.
Kirby mentioned Tuesday that he thinks any traveler share shift away from Southwest is simply more likely to happen on the “margins.” In different phrases, the numbers could 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 outcome quickly. The modifications at Southwest already started earlier this month with new Fast Rewards incomes charges; 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 possibly a touch of irony.
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