Southwest ditches free checked bag policy in end of era for airline

Southwest Airlines will begin charging passengers for some checked luggage, ending a free-bag policy that has been a hallmark of the carrier since its founding more than five decades ago.

Customers will be charged for their first and second checked bags unless they hold top-tier loyalty status or are traveling on a business fare. The changes apply to flights booked on or after May 28, the airline said Tuesday.

Scrapping the “bags fly free” perk is the latest seismic shift for Southwest in the wake of a pressure campaign by activist Elliott Investment Management, now one of its biggest shareholders. The airline has been moving away from its historic one-size-fits-all business model, revealing plans last year to ditch its open seating policy, while also announcing a new premium class section and red-eye flights.

The overhaul has been part of a larger effort to revamp operations, improve financial results and galvanize the stock, which has fallen about 18% over the past year while the broader market has gained. Southwest said last month it would cut 15% of its corporate positions, or about 1,750 jobs, in its first-ever involuntary layoffs.

The airline has slowed its growth plans over the next three years as it works to carve $500 million out of spending — a target it roughly doubled to a little over $1 billion on Tuesday. It’s also monetizing its fleet of aircraft and orders, taking advantage of high demand for Boeing Co. and Airbus SE planes as production challenges limit supply.

Southwest on Tuesday also revised its financial outlook in part to reflect “softness in bookings and demand trends as the macro environment has weakened,” echoing comments a day earlier from rival Delta Air Lines Inc. Southwest now sees unit revenue up 2% to 4% this quarter, down from a prior expectation of as much as 7%. 

The airline now says non-fuel costs on a seat-mile basis will rise 6% from a year ago compared with its earlier outlook for up to a 9% increase.

Southwest will also accelerate to July 2025 the completion of a $2.5 billion share repurchase program.

Its shares rose 5% as of 7:20 a.m. before regular trading in New York. Southwest and other airline stocks had dropped after Delta cut its profit forecast Monday.

Southwest has long stood by its free-luggage policy, which executives have said differentiates the carrier from competitors — it has been the only major US airline to allow passengers to check two bags at no cost. Chief Executive Officer Bob Jordan emphasized the importance of the feature on an earnings call last April, saying that “people choose Southwest Airlines because we don’t have bag fees.”

As recently as its September investor day, Southwest lauded the two free bags policy as “far and away the top feature” distinguishing the airline. Eliminating it would risk a loss of customers that would overwhelm incremental revenue from the fees, cutting $300 million from sales.

Bloomberg reported in August that the company had quietly started surveying some customers about imposing bag fees for certain fares, suggesting it was considering a change at least since then.

New customers

Elliott has largely avoided calling for specific policy changes, but has criticized Southwest for failing to take advantage of potential revenue sources. Southwest didn’t specify in Tuesday’s statement whether Elliott had played a role in the policy change.

Jordan said that the changes are designed to boost the airline’s sagging profits and win new customers it doesn’t currently compete for. The airline didn’t specify how much it would charge for each bag.

Southwest’s A-list Preferred Members and those who purchase “Business Select” fares will continue to get two free checked bags, while A-list Members and “other select customers” will receive one free checked bag, the carrier said. Holders of the airline’s Rapid Rewards credit card also will get one free checked bag.

In addition to the bag fees, Southwest also said it will introduce a new “basic” fare on its lowest-priced tickets starting May 28. The offering is similar to rock-bottom fares with certain limitations that have been adopted by larger rivals like American Airlines Group Inc. and United Airlines Holdings Inc. to lure the most price-conscious customers away from ultra-discount carriers.

Additionally, Southwest flight credits issued from either a canceled flight or a downgrade will now expire in one year or less, depending on the fare type, the airline said Tuesday.

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