Southwest Airlines customers face losing their biggest perk
More bad news for Southwest Airlines customers: the “bags fly free” benefit is under threat.
It is the only U.S. airline that does not charge fees, and these types of customer-friendly policies and open seating are its trademark.
Just last month, it increased fees for customers wanting to board early in an effort to get a better seat – the first sign that a change in tactics was underway.
Now further changes are being demanded by an activist investor. Elliott Investment Management announced on Sunday that it had bought a $1.9 billion stake (11 percent of the airline) and is trying to force out the CEO. It has support from other investors.
Most notable is the elimination of the hugely popular policy of giving passengers two checked bags for free. All other U.S. airlines charge fees, and last year it generated billions of dollars in revenue for the likes of Delta, American, United, Spirit and Frontier.
Charges of $30 to $50 per bag would be a welcome source of revenue for the financially struggling airline, analysts say. That could mean an extra $100 per flight for two bags.
Southwest Airlines offers two free bags, but that is about to change
Elliot sees the freebie as a missed opportunity to charge for bags and rake in tens of millions in fees.
Free bags are part of Southwest’s DNA and are regularly featured in their advertisements. Changing it could alienate regular fliers.
Elliot also wants to end the open seating policy and instead sell seats that cost different amounts, such as basic economy and more premium options.
The airline’s shares rose 7 percent on Monday, their second-best day since 2020, as Wall Street cheered the intervention, which was announced on Sunday.
In a letter to Southwest’s board: the investment firm complained that Southwest’s stock price has fallen more than 50 percent over the past three years.
Southwest CEO Robert Jordan “has delivered unacceptable financial and operating performance quarter after quarter,” the letter said.
They call for Jordan to go.
But heJordan said Wednesday he will not resign and said Southwest will present its plan at an investor day in September.
Jordan said Southwest is investing in better technology — critics blamed outdated systems for contributing to mass flight cancellations in December 2022.
He said the airline is also improving the customer experience with better Wi-Fi, larger carry-on bins and more power outlets.
Elliott, whose stake in Southwest is estimated by analysts at about 11%, declined to comment on the CEO’s comments.
For years, Southwest appealed to budget-conscious flyers by not charging for a checked bag or changing a reservation.
All major US airlines, including Delta, charge for baggage, except Southwest
Baggage charges on the largest global airlines are rising
The aircraft do not have a premium cabin. However, its biggest rivals have slashed change fees during the pandemic and are winning over luxury travelers with better seats and amenities.
In April, when Southwest reported a first-quarter loss of $231 million, Jordan appeared to bow to market pressure by announcing that Southwest was considering changes to its boarding and seating policies.
The airline even took the rare step of removing four cities from its map.
A report earlier this year showed how airlines like Delta, United and American made a whopping $33.3 billion from baggage fees alone last year – a sharp 15 percent increase from 2022’s $29 billion.
This amount consists solely of fees for larger carry-on bags, fees for standard checked bags, and fines for overweight or oversized checked bags. Last year, this amount accounted for 4.1 percent of global airline revenues.