Southwest Airlines to End Free Checked Bags, Implement Fees

Southwest Airlines announced on Tuesday that it will start charging customers for checked baggage. This move reverses a long-standing policy that company executives had previously highlighted as a key differentiator for the budget airline.

Southwest, known for advertising its free checked bag policy for years, stated that passengers who are not high-tier members of its Rapid Rewards loyalty program, who haven’t purchased business class tickets, or who don’t possess the airline’s credit card will now be required to pay for checked bags.

The airline has not yet released the specific fee amounts but indicated that the new policy will be implemented for bookings made on or after May 28.

Southwest Airlines CEO Bob Jordan stated that the airline has a significant opportunity to cater to current and future customer demands, attract new customer groups, and restore profitability to levels expected by both the company and its shareholders.

Almost a year ago, the Dallas-based carrier revealed its plan to discontinue its open-boarding system, which had been in place for over half a century. Southwest anticipates introducing assigned seating on its flights next year.

Southwest has faced recent challenges and is under pressure from activist investors to increase profits and revenue. In October, the airline reached an agreement with hedge fund Elliott Investment Management to prevent a proxy fight, resulting in Elliott gaining several seats on Southwest’s board.

Last month, the airline announced the elimination of 1,750 positions, representing 15% of its corporate workforce, marking the company’s 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 strategy to reduce costs and transform the company into a more efficient and adaptable organization, according to Jordan.

Southwest’s stock price increased by over 6% in pre-market trading on Tuesday.

During Southwest’s investor day in late September, airline executives emphasized the free baggage allowance as the most crucial aspect differentiating Southwest from its competitors. Other major U.S. airlines charge for checked baggage, and Wall Street has long suggested that Southwest was missing out on potential revenue.

In September, the airline estimated that implementing baggage fees would generate approximately $1.5 billion annually, but could also result in $1.8 billion in lost revenue due to customers choosing other airlines with more generous baggage policies.

Southwest clarified on Tuesday that it will continue to offer two complimentary checked bags to Rapid Rewards A-List preferred members and passengers traveling on Business Select fares. A-List members and other select customers will still receive one free checked bag. Customers with Rapid Rewards credit cards will receive a statement credit for one checked bag.

Passengers not eligible for these categories will be charged for checked baggage. The airline also stated that it will introduce a new, basic fare option on its lowest-priced tickets when the policy takes effect.

In a regulatory filing, Southwest indicated that it now expects first-quarter revenue per available seat mile to increase by 2% to 4%. Its previous forecast projected an increase of 5% to 7%. The airline anticipates a capacity reduction of approximately 2%.

The airline announced last year that, in addition to assigned seating, it would offer extra-legroom seating for an additional charge and introduce red-eye flights.