Southwest Airlines announced Tuesday that it will begin charging customers a fee to check bags, abandoning a core policy that it had previously touted as a key differentiator from its competitors, The Associated Press reports.
For decades, Southwest built its brand around the “bags fly free” policy, allowing passengers to check up to two bags without charge. However, the airline stated that passengers who haven’t attained upper-tier status in its Rapid Rewards loyalty program, purchased a Business Select ticket, or hold the airline’s credit card will now be required to pay for checked baggage.
While Southwest did not release a detailed fee schedule, the new policy will be effective for flights booked on or after May 28.
This announcement comes less than a year after Southwest revealed its plans to abandon another long-held tradition: its open-boarding system. The airline expects to introduce assigned seating on its flights next year.
These changes are unfolding as Southwest faces pressure from activist investors, including Elliott Investment Management, to improve profitability and revenue. Southwest reached an agreement with Elliott in October, granting the hedge fund several seats on the company’s board to avoid a proxy fight.
Last month, the airline announced the elimination of 1,750 jobs, representing 15% of its corporate workforce, in its first major layoffs in its 53-year history. These job cuts, expected to be largely completed by the end of June, are part of a broader plan to reduce costs and transform Southwest into a “leaner, faster, and more agile organization,” according to CEO Bob Jordan.
Despite the negative news, Southwest’s stock rose more than 9% on Tuesday, suggesting investor confidence in the airline’s strategic shift.
As recently as its investor day in late September, Southwest executives emphasized the “bags fly free” policy as a critical element in setting the airline apart. In contrast, all other major US airlines charge for checked luggage, and Wall Street analysts have long argued that Southwest was leaving substantial revenue on the table.
In September, Southwest estimated that charging bag fees could generate approximately $1.5 billion in annual revenue but projected a potential loss of $1.8 billion in business from customers who chose Southwest specifically for its generous baggage allowance.
However, Southwest clarified on Tuesday that it will continue to offer two free checked bags to Rapid Rewards A-List Preferred members and Business Select fare passengers, and one free checked bag to A-List members and certain other customers. Furthermore, passengers holding Rapid Rewards credit cards will receive a credit for one checked bag.
This strategic shift also comes amid broader economic uncertainty. Southwest also announced last year that it would charge passengers extra for seats with more legroom and offer red-eye flights as new revenue generating measures.
Alongside the bag fee announcement, Southwest also lowered its revenue guidance for the current quarter. The airline now expects revenue per available seat mile to increase by 2% to 4%, down from its previous projection of 5% to 7%. Capacity is also expected to be down by some 2%.
