Southwest Airways’ plan to begin charging for checked luggage might not solely be good for its backside line but in addition for different carriers, United Airways CEO Scott Kirby stated.
“It is the slaying of the sacred cow,” Kirby stated at a J.P. Morgan investor convention on Tuesday, hours after Southwest unveiled the brand new charges.
He added that he believes the transfer can be “good for everybody” — referring to the bigger U.S. airline business the place bag charges are commonplace.
The extra : One of the best time to e-book flights for the most cost effective airfare
Dallas-based Southwest will start charging checked bag charges on new bookings from Might 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 extra baggage. The one vacationers exempt from Southwest’s new charges are its top-tier A-Checklist 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 a lot of Southwest’s standout options are discontinued or diluted — and the airline extra intently resembles the rivals it as soon as claimed to be completely 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 practically 20 years, particularly as checked bag prices turned commonplace at competing airways. To at the present time, 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, stated in September. “It’s far and away the highest function that differentiates Southwest from our rivals, and it is without doubt one of the high standards in why clients select Southwest Airways.”
Every day Publication
Reward your inbox with the TPG Every day publication
Be part of over 700,000 readers for breaking information, in-depth guides and unique offers from TPG’s specialists
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 robust, 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 stated 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 shoppers.
Associated: Southwest to launch assigned seats in 2026, will accomplice with worldwide airways
Southwest CEO Bob Jordan sang a really completely different tune on Tuesday.
“Precise buyer reserving habits by our new reserving channels didn’t present that we have been getting the identical profit from our bundled providing with free luggage, which has led us to replace the assumptions,” he stated on the airline’s observations after itemizing its flights on widespread journey search web sites, together with Expedia and Google Flights.
Southwest’s chief working officer, Andrew Watterson, added that the service was “over delivering” to vacationers who e-book its least expensive fares, referred to as Wanna Get Away.
Investor pushed initiatives
Southwest’s modifications are pushed, primarily, by stress from buyers. After taking a roughly 11% stake within the airline final yr, 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 centered on boosting earnings and elevating its share value. 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 is just not altering,” Jordan stated in response to a query on tradition. He added that, for instance, assigned seating is one thing workers need whereas acknowledging that the layoffs have been “very tough.”
Elliott raised its stake in Southwest to just about 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 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 stated Tuesday that he thinks any traveler share shift away from Southwest is simply prone 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’ll know the end result 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 Might. 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 stated with possibly a touch of irony.
Associated studying:
