With the launch of checked baggage fees, Southwest Airlines is implementing a significant overhaul of its business model and moving away from a long-time practice that set it apart from competitors. The airline took a significant departure from its traditional customer-friendly approach on Tuesday when it announced that the new fees will take effect on May 28. The decision was made as Southwest struggles with financial challenges and increasing pressure to boost profits.
For years, Southwest has stood out in the airline business by permitting two free bags to be checked by passengers—something none of the other large U.S. carriers does. Its “bags fly free” policy has been an integral component of its brand identity, solidifying its position as a consumer-friendly airline. Yet the company is gambling that the extra revenue from baggage fees will serve to counterbalance its lackluster financial results.
The rollout of these charges comes on the heels of another major change that the airline made last year—eliminating its iconic open seating policy, which had been a hallmark of its service for more than half a century. These changes portend a larger strategy reboot as the airline attempts to stay competitive in a changing industry landscape.
Although the Southwest executives anticipate the change to increase profits and reward frequent flyers with possible incentives, the action is not risk-free. By charging for bags, the airline can risk losing some of its loyal customer base. Some customers might rethink their loyalty and go to competing airlines, especially as baggage fees have been a carrier industry-wide point of aggravation among travelers.
Industry rivals have already begun to take notice of Southwest’s move. Delta Air Lines President Glen Hauenstein said on Tuesday that some of Southwest’s passengers might now be willing to consider alternatives, considering the policy change.
Financially, the action could be worth a huge injection for the airline. It is estimated by analysts that the fee on bags could add $1.5 billion to Southwest’s revenue every year, a handsome amount that would contribute towards shoring up the finances of the airline. But many experts are still not convinced of the longer-term effect on the airline’s image.
“We were not advocates of bag fees,” said Savanthi Syth, an analyst at Raymond James. Her comment highlights the fear that this policy change would erode Southwest’s reputation as a low-cost and customer-friendly airline.
In spite of all these issues, Southwest seems keen to proceed with the changes. The airline has been under mounting financial pressure with increasing operational expenses and changing market conditions. While competitors are already charging for checked bags and making billions in ancillary fees, Southwest is now conforming to industry standards in an attempt to stay profitable.
The introduction of baggage fees is one aspect of a broader pattern in the airline business, wherein airlines are searching for new ways to generate revenues outside of the sale of tickets. Ancillary fees, which include baggage fees, have proved to be the largest source of revenue for airlines, enabling airlines to keep their base fares low while maximizing top-line revenue.
The changes will involve passengers who have relied on the free baggage policy of Southwest for many years adjusting. The airline is expected to implement loyalty-based rewards in order to reduce the effect on frequent flyers, although details of the pricing plan have not been announced yet.
Customers and the airlines will be keenly watching what effect the adjustment has on the revenue and consumers’ attitudes toward the airline when Southwest prepares to implement this policy change. It remains to be seen whether the adjustment will, in the long run, increase or decrease the reputation of the airline, but one thing for certain is this: Southwest is embracing change with the hope to keep up with the evolving airlines market.
