Competitors See a Silver Lining as Southwest Plans New Baggage Fees

Southwest Airlines has decided to discontinue its widely loved complimentary baggage policy, much to the delight of its industry rivals.

Executives from United Airlines and Delta Air Lines suggested on Tuesday that this new fee structure might entice cost-conscious travelers to consider their services instead.

Scott Kirby from United Airlines likened the revocation of Southwest's free baggage perk to a major industry shift, calling it akin to "slaying a sacred cow."

"This change is monumental for Southwest and potentially advantageous for all others," Kirby expressed at a conference hosted by JPMorgan.

Echoing this sentiment, Ed Bastian of Delta highlighted the opportunity to capture customers who initially sided with Southwest because of its baggage policy.

Amtrak joined the dialogue through a social media post, reminding travelers that their passengers can carry two bags free of charge.

Domestic airlines constantly vie for market share in the United States.

For the year concluded in November 2024, data from the Bureau of Transportation Statistics revealed that Delta held 17.7% of the U.S. market, with Southwest close behind at 17.3%, and United at 16%.

The revenue generated from auxiliary fees for services such as choosing seats, in-flight dining options, and baggage has grown crucial, as evidenced by United's $4.5 billion income in these fees for 2024.

Intense Pressure from Investors on Southwest

Southwest's Tuesday announcement detailed a shift in its 'bags fly free' policy, now limited to certain premium members starting May 28, with all others needing to pay for their first and second checked bags.

Previously in July, CEO Bob Jordan emphasized that besides fare and schedule, free baggage was a leading reason customers picked Southwest. He reiterated this point again in September.

During the JPMorgan event, Jordan explained that the policy adjustment aims to boost new sign-ups for Southwest's credit card and bring in additional revenue.

Jordan noted, "Our baggage volume is nearly twice that of our nearest competitors, leading to significant costs in various areas."

This decision is a part of significant organizational changes at Southwest amid increasing investor dissatisfaction due to a series of unsatisfactory earnings reports. Despite a high demand for travel, passenger numbers haven’t bounced back to pre-pandemic figures. Over the past five years, Southwest's stock value plummeted by 26%, whereas United's surged by over 80%.

In July, Elliott Investment Management, which acquired an 11% stake, criticized the airline's long-standing policies as ineffective. The investor demanded a restructuring of the executive team and board, leading to Southwest appointing six new external directors in October as part of an agreement with Elliot.

Coinciding with this was the July withdrawal of another iconic Southwest practice—free seating—which was replaced with a tier system offering basic and premium seat options. This change also saw the company release 15% or roughly 1,750 corporate employees.

So far this year, Southwest's stock has dropped by 9%.

Questions sent to Southwest outside normal working hours went unanswered.