No checked bag fees has been a sine qua non of Southwest Airlines. Customers choose Southwest because of this. It makes them appear friendlier and more flexible. And there are strong economic reasons why this is a great choice for the airline. It also differentiates them from other airlines, in an otherwise mostly homogenous industry.
And free checked bags may be on the way out.
Departure Of Chief Transformation Officer Signals Change
Ryan Green has been in charge of the Southwest Airlines transformation. Under pressure from activist investor Elliott Management, they’ve been making changes – and becoming more like the rest of the industry – but not fast enough for the fund that’s taken control of nearly half the Board of Directors.
Green is leaving, and the news followed the announcement of the upcoming departures of Southwest’s CFO and its Chief Administrative Officer. ‘Southwest lifers’ are out.
Southwest had committed itself to making changes, like assigned seating and extra legroom seats, but not to add bag fees. Yet the person in charge of this vision is leaving, and Elliott Management is expected to increase its stake in the airline to 19.9%.
The airline is moving to (paid) assigned seats; extra legroom premium seating for customers to spend more; redeye flights that generate incremental revenue using the same planes; route cuts; partnerships with other airlines; and selling planes to fund share buybacks.
But Elliott has pushed for checked bag fees, too.
Selling Tickets On Expedia Will Require Checked Bag Fees
Southwest Airlines historically sold tickets almost exclusively through its own channels. Not paying anyone else is a cost saving, but it also made it harder for customers to compare prices since Southwest.com shows only Southwest flights rather than Southwest versus other airlines side by side.
The downside to this is that customers have to know to go to Southwest’s website. And in places like Chicago, Dallas, Denver and Southern California they do. But in cities where they have a smaller presence, they lose customers. They fill seats on those flights largely with passengers traveling from their hubs, rather than local customers the way that other airlines can.
To change that, Southwest has been adding visibility on other sites. They now show up at Google Flights and Kayak. Now they’ve done a deal with Expedia Group, and Southwest Airlines flights will show up at Expedia, Travelocity, Hotwire, Orbitz, and CheapTickets.
- That means more ticket sales for Southwest
- But Southwest tickets are often more expensive than the cheapest options on other airlines (such as basic economy tickets)
- By not ‘unbundling’, making the cheapest fares non-refundable, and stripping out checked bags for the lowest cost tickets Southwest Airlines looks more expensive than other options.
- That will cost them sales.
In other to compete, Southwest will face huge pressure to unbundle and show prices in stripped down fashion. That means charging separately for checked bags.
The Department of Transportation issued a rule in the Biden administration that would have required airlines and agency sites to display fares inclusive of fees like a checked bag. However that rule was enjoined by the U.S. Court of Appeals for the Fifth Circuit. It’s unclear what future that rule has, if any, under the Trump administration.
Had the rule been implemented, Southwest would have benefit – since competitor fares would show up inclusive of checked bags even though they were being charged separately (and Southwest would therefore no longer appear more expensive0. With that rule not having an obvious path to implementation, but Southwest proceeding onto third party platforms anyway, they will almost have to charge separately for bags the way that other airlines on those platforms do in order to appear price-competitive.
Bag Fees Will Make Southwest Less Efficient
Southwest Airlines is going to start assigning seats, so that they can sell seat assignments, including assignments for extra legroom seats. That slows down boarding, compared to their present ‘first come, first serve’ seating that encourages everyone to show up at the gate before boarding starts and queue to get on board in order to access the best seat.
Free checked bags play a big role in boarding quickly, too. Passengers aren’t trying to bring as much onboard the aircraft to save on bag fees. That means passengers just get on the plane, go to their seats, without having to load carry-ons into bins. And it also means there’s less of a need to gate check bags than on other airlines, as planes run out of space on board. Adding checked bag fees, then, slows down the boarding process.
Southwest Airlines turn times are going to increase. They are going to be less efficient with their aircraft, even though they’ve been pushing a narrative about speeding up boarding. The opposite will happen.
And that means fleet utilization suffers. If you lose 5 minutes per flight you may push the last flight of the day off over half an hour, outside the window that customers want to book flights. Airlines also optimize schedules for connecting flights, and less efficient scheduling throws that off.
In 2011, when the airline was much smaller, they said that “It would cost us approximately 8 to 10 airplanes of flying per day if we were to add just a couple of minutes of block time to each flight in our schedule.” Losing, say, 16 aircraft a day now could cost them nearly as much revenue as checked bag fees generates (even if separating checked bag fees out from the fare didn’t reduce fares, which is unrealistic).
In contrast, when Southwest was struggling at launch and had to return one of their four aircraft, they figured out how to fly their same schedule with just 3 planes – the 10 minute turn.
On the other hand, checked bag fees are tax-efficient. When you pull ancillaries out of the base fare, you save the 7.5% excise tax on that portion of the fare that’s now called a fee. $1 billion in bag fee revenue may reduce fare revenue by the same or more, but generates $75 million in tax savings.
Elliott Management is out for Elliott Management. Another billionaire you thinks his money annotated him with business smarts (the current occupant of the White House is a shining example of this).
Charging for checked bags takes away Southwest’s last competitive differentiator. That and the lack of partner alliances SWA will translate into lost market share.
In theory, I support bag fees, as long as they are not predatory; bag fees allocate the costs of carrying luggage to those transporting same. Costs presumably include building and maintaining the systems needed and staff and equipment to move bags (conversely, carryon costs include the additional time planes need for passengers to store and unload their bags.) However, $40-100 or whatever they are today seems excessive. Can anyone provide the CPA answer as to what these costs are? Thank you.
We all know this is coming soon…the question is: will it be one bag free or $$ for any checked bags?
I’m so glad Herb and Colleen aren’t here to see what’s become of their airline. The only way this could get worse is if DUI Dougie enters the chat.
I am a member of American Airlines including with a credit card. PHL is a hub although usually BA is usually less expensive for the same flights and I also a member of BA without a credit card there. Points can be transferred. The point here is that the status that some of it would be beneficial, mean one has to spend $40,000 on either flights or stuff PER YEAR which is absurd. Minimally, many things on what one spends high amounts of $ cannot be paid with a credit card or adds 3% for that usage and negates the bonus rewards. Retail outlets are jumping on this, too, including gas stations, restaurants, farmer’s markets. This includes taxes, home repairs/upgrades, even a car or condo fees. Much of this is paper tiger for status. Value isn’t there.
So… assigning seats, charging for checked bags… might as well remove the ‘heart’ and call it American Airlines.
Folks, stop blaming the workers–it’s (mis)management and the vultures at Elliott.
it doesn’t make sense for WN to offer 2 free bags on every fare.
They offer economy basic fares competitive with ULCCs and those should not have the same benefits as other WN type fares.
At the high end of the fare scale, of course include 2 free bags but those tickets are often bought by business people that don’t check bags.
WN has survived a lot of change and this will be one of the latest. People will forget the two bags fly free stuff in light of all of the other changes with assigned seating being by far the biggest change.
and WN’s redeye flights are apparently doing well – which is good news.
@Tim Dunn — You’re alive and well! Huzzah! Sir, there’s a recent post on Delta starting a Morocco routing. Get on over there! We need your wisdom! (not sarcastic, in all seriousness)
I’d never book anything on Expedia, and for most SW flights I just have carry-on. SW has been my go-to domestic airline for years ( and AirTran was good before). But things might change now that other low cost airlines are expanding in Atlanta. I’ll still have to go through all of my banked travel funds and points in any case.
Elliot Management’s scheme for Southwest:
Phase 1- collect baggage fees
Phase 2- ??
Phase 3- PROFIT!!
note on my observations when flying SW is alot of people still carry there bags on the flight even tho they say bags fly free,, I challange anybody to see if bags are really free, as it in the basic fares that they charge which are sometimes $50.-$75. more than other low cost airlines that charge extra to carry on bags.
Looks like Southwest will become just like a legacy sans lounges and a true first class. This airline was family friendly because if a family of four was flying that was four bags that could be checked for free.
Ultimately other than some direct routes that avoid connections not sure what Southwest brings in the form of product differentiation.
Bob Jordan and his equally inept predecessor, Gary Kelly, rode the wave of “do nothing” to the existing business model for a decade after the market shifted to premium options.
You see it every day in corporate America…legacy CEOs and their handpicked SVPs resist change and do nothing more than maintain the status quo for years…until no one is willing to pay a premium for their outdated brand (as the competition has already reacted).
If Southwest starts charging for bags on top of already going to assigned seating (plus extra for “premium”) then they are no different than any other airline.
I have always flown Southwest but if Elliot gets these changes through than I will definitely be looking around.
Way past time for WN to fess up….the days of the “quick turn” are and have been long gone for a long time. Got to hand it to them, did create an “image” in many of the traveling public that it still exists and helps their overall dependability. Adding assigned seating won’t make any appreciable difference.
1990,
I will post to the DL RAK article because you asked.
On most issues, I don’t debate them on multiple sites since alot of people read both. Ben posted it first although it was still a rumor which I generally don’t jump into unless it is pretty clear there is a major strategic misunderstanding of the issues at play. speculation about addition of routes for the big 3 is not worthy of my time. once they are confirmed, it is much more worthy of my time.
Gary does a pretty good job of talking about strategic and industry issues although he gets stuck on some things.
As for the commentary about WN here, Gary is still speculating but he is likely right. Elliott identified that WN is trying to give away too much of its product w/o adequate revenue to justify it.
WN execs probably are right that they will lose some customers if they pull the 2 bags fly free on all fares campaign but that is probably the point – they are losing money and carrying some passengers they should not be.
They will have to figure out the turn times w/ all the product changes but still has enough of a presence in many markets that they will win their share of business merely based on size.
@Tim Dunn — I genuinely respect you and am often excited to read your insights on these topics.
While I’m happy to ‘get in the weeds’ on the issues at hand, I also enjoy the unrelated banter as well (on occasion).
On DL, yeah, talk is indeed cheap, so we’ll see whether they proceed. Personally, I like the idea and have wanted to return to Marrakech. For them, I would even be willing to route through ATL instead of JFK/EWR from my base in NYC. Though, if they were serious about taking on UA, they’d run JFK-RAK for this. That would be spicy!
As for Southwest, I hope they pull this off, because our domestic market needs the competition. I’m a bit concerned that ‘the times’ will swallow up a few of the stragglers, leaving just ‘the big three’ and an occasional start-up that flops every few years. Not sure who benefits from such consolidation other than the investors, but not if eventually less people fly. Whereas, more options and variety is often better for consumers and workers. Time will tell.
The whole “no checked bag fee” was vaporware (to use a term from my IT days). On other major carriers no elite passenger, someone with an affinity card, that bought first class or paid for a bundled coach seat that included bags and seat assignment (AA had this not sure about DL/UA) paid for checked bags. The only people that paid were once or twice a year leisure travelers. Sw sold this in their marketing but frankly not a differentiator except to the lowest level of passenger (which most airlines aren’t chasing)
1990.
the reason why DL is doing ATL-RAK is because ATL is such a powerful hub to aggregate traffic from all over the US.
The costs for DL to push traffic through ATL are so much cheaper than any NYC airport.
DL can more cost efficiently pick off the rest of the country; NYC traffic alone can’t sustain any flight. Maybe the RAK market is really big enough that UA can carry connections through EWR and still benefit from the NYC market but I suspect that you were right in saying that UA will be pissed.
and as much online competition as there is between DL and UA fans, DL has done far more to bump into UA’s dominance in international markets than UA has done in the domestic market. and DL’s bumping will continue.
if UA can make money in the international marketplace, DL can do and will do it more efficiently.
as for WN and their bag fees, yes, they were chasing low value passengers. WN can turn itself around but WN is more likely to do that than AA is.
and, btw, Gary, another site is reporting that AA is testing free WiFi in several markets based on a leaked internal memo.
You and JonNYC didn’t manage to get that memo but Seeking Alpha did?
The one thing assigned seating will do is get rid of the 0-60 A B C boarding process that did speed up boarding. I hate the other airlines that have the “If you are this level of frequent traveler you can now board”. That adds 10 mins to the process. The fares better go down with charging checked bag fees. I’m A+ status, so will probably get free bags and good seat choices anyway.
If Elliot imposes aggressive checked bag fees, it could really hurt Southwest. In recent years, Southwest has become significantly more expensive, with round-trip tickets often costing around $650. Adding bag fees on top of those prices would likely cause their load factor to drop. I guess they have to cover the hefty labor contract they agreed to with the unions, but it seems like a tough pill to swallow.
As a loyal 40 year plus SW user I love the way it operates now! I need the two free bags checked and I want to choose my seat every flight … Do Not Change please
Well then… There will be absolutely no reason for me to make the extra hour and a half drive to choose Southwest over the either of the big three then. No one seems to ever mention they will be charging for the chosen seat assignments at booking, if you choose not to pay for it, you’ll just get assigned a seat at check-in, which you won’t choose….
Might as well take the O-U-T-H-W-E-S-T off the planes and put up the P-I-R-I-T.
Times change and so will Southwest. Every airline charges for bags already. I am sure Southwest credit cards will waive a bag fee. Economy flying is a comodity product. No reason Southwest shouldn’t drive revenue to its credit card business or have people who wish to fly with bags pay their cost. Southwest will gladly sell you an Anytime fare ticket that will inlcude bags.
The “we’re no worse than anybody else” business strategy is alive and well today but seems to be lead by the Airline industry.
The bar is already set pretty low when you see yourself as a “commodity product” so once you choose to go down that path there is nowhere else to go . . . . . but further down!
Southwest is far different than the Peanut Fare atmosphere of the past when I started flying on business.
Today, Southwest has turned into a hassle. Passengers are claiming Reserved Seats while you are #25 in Group A; and the Jesus Jetway situation has gotten totally out of hand. From when I live (MSY), Southwest will push you thru ATL no matter what. Might as well go Delta. In addition, the majority of PAX have developed a mind set of one carry-on and one personal item. The last time I’ve checked a bag was for TALT service which is usually included in the fare.
The world changed and Southwest was caught with its defenses down. Elliot saw an opening and ran with the money. Soooooo reminds me of Icahn and TWA which was sucked dry of its assets and ended up filing for Chapter 11 three times (Chapter 33) . Also reminds me of Frank Lorenzo and Texas Air shenanigans of stock manipulation.
Déjà vu, it’s the 1980’s….enjoy the turbulence!!
Doesn’t matter to me anymore won’t be crossing the border anytime soon. It’s a dumb move.