Two bags fly free has been for decades not just a slogan, but a registered trademark of Southwest Airlines , which allowed passengers to check in two bags for free. Now the largest U.S. low-cost airline is falling into line with its rivals: it will charge passengers to check in their bags . A year ago, the chief operating officer , Andrew Watterson , assured: “Things will stay the same,” referring to the free check-in of two bags. As recently as last July, executives reiterated their intention not to change anything, explaining that it was thanks to this benefit that customers chose the company.
However, they had not yet taken into account the activist investor Elliott Investment Management , which, having acquired a significant shareholding in the airline and obtained five seats on the board of directors, began its push to profoundly change the company’s business model .
Starting with the elimination of free benefits: for checked baggage, changing tickets or seats will have to be paid, unless you buy the most expensive fare ; exceptions are foreseen, for example for credit card holders , who will have a free bag, and for Elite frequent flyers . The new company policy will be in force starting from tickets purchased on May 28.
Southwest is thus falling into line with its rivals : together, last year, they earned $5.5 billion from checked baggage, according to federal data cited by CNBC .
“What’s changed is we realized we need more revenue to cover our costs,” Watterson said today in an interview with CNBC. The company now believes the change will be a positive one , revenue-wise; in September, its chief transformation officer, Ryan Green , said his analysis showed more money would be lost from customers leaving the company than it would have made in baggage fees. Green left Southwest last month.
Southwest is also trying to cut costs . In February, it announced its first mass layoffs : 1,750 corporate employees , about 15% of the total, were affected . It was a decision that was “ unprecedented ,” according to CEO Bob Jordan , in the airline’s 53-year history.
Southwest Airlines said Tuesday it will start charging some customers for checked bags, ending a first-of-its-kind policy of free bags as the company looks for ways to shore up its revenue.
The changes mark yet another departure from the Texas-based carrier’s passenger-friendly policies. Last year, Southwest announced plans to end open seating, which has been a cornerstone of its brand image for more than 50 years.
Its “bags fly free” policy has been an industry exception. Southwest is the only major U.S. carrier that allows customers to check in two bags at no charge, a strategy that company executives say differentiates it from rivals.
But that policy will change on May 28, as weak earnings fuel pressure to revamp its business model. Chief Executive Bob Jordan has set a goal of pushing Southwest’s operating margin to at least 10% in 2027, up from 2% last year — a benchmark investors had expected from the airline before the pandemic.
The policy shift suggests the growing influence of activist investor Elliott Investment Management on the airline. The hedge fund, whose nominees hold five of the 15 board seats, has criticized Southwest’s leadership for not charging a fee for checking bags like other airlines to boost its revenue.
Under the new policy, the airline will continue to offer two free bags to loyal customers with the highest status, A-List Preferred, and to passengers paying the highest fare.
Customers with a lower loyalty status, A-List, will receive a free checked bag. The carrier will credit one checked bag for passengers holding its co-branded credit card.
Those who do not qualify for free baggage options will be charged for the first and second checked bags.
Southwest said the changes are aimed at rewarding its most loyal customers and supporting profits.
The new baggage policy comes weeks after the airline made its first company-wide layoffs in its nearly 54-year history.
Baggage fees generated more than $7 billion in revenue in 2023 for major U.S. airlines, but Southwest generated just $73.4 million, according to the Bureau of Transportation Statistics.
Until now, the airline had resisted pressure from investors to start charging for bags, saying its data showed that its no-bag-fee policy was the number one reason customers chose it.
Last year, the company said that while charging for bags could bring in $1.5 billion in additional revenue each year, it would cost the airline $1.8 billion in lost market share.
