Southwest Airlines is beginning redeye flights. They’re working on premium seating and assigned seats. They’ve been slow in most of their new efforts, and are being dragged into change faster by an activist investor. But some of what’s under consideration could do real damage to the Southwest brand and the multiples that their stock has been able to achieve – and alienate customers who are fanatically loyal.
One of the things that Southwest appears to be eyeing is eliminating free checked bags for all passengers, a key part of today’s unique value proposition of the airline. They are surveying what eliminating this benefit would look like.
Southwest Airlines Co. is seeking customer feedback on possible changes to its policy allowing free checked bags, suggesting the carrier could scrap another of its defining perks as it tries to fend off an activist investor.
The company surveyed select loyalty members and consumers beginning last week about hypothetical scenarios imposing bag fees for lower-cost fares…
Part of the customer survey detailed a hypothetical policy in which Wanna Get Away fares, the cheapest, include only a personal item and carry-on bag, while Wanna Get Away Plus has one free checked bag. The higher-cost categories — Anytime and Business Select — would maintain two free checked bags.
My take is that Southwest may be surveying this expecting customers to say it’s a terrible idea. Many of the things under consideration, and being pushed by Elliott Capital which is engaged in a proxy battle for control of the airline, are a bad idea.
There are changes Southwest needs to make to address real problems:
- Visibility through all sales channels. Historically Southwest tickets were (mostly) only available through direct sales channels. You went to their website to book tickets, and couldn’t buy them on Expedia. Southwest.com was one of the first internet sites to hit a billion dollars in revenue.
This was lower cost, and also helped avoid comparison shopping. Online travel agencies showed schedule and price, but didn’t compare apples-to-oranges. For instance, Southwest fares include two checked bags. Some fares (like United’s basic economy) do not even include a carry-on bag. Expedia makes United look like the better deal if the price is lower, even if the total trip cost will be much higher.
Department of Transportation rules were set to require airlines to show fares including fees like carry-on and checked bags. Fixing in stone which fees must be shown up front isn’t a good idea long-term, as what is offered and matters to customers changes over time. But it was going to be great for making Southwest fares competitive.
Southwest has begun to allow display of its fares outside its own platforms, such as Google Flights and Kayak. But the DOT rule has been enjoyed by a federal court, so remains to be seen if or when it gets implemented. They do need broad distribution though because outside of major Southwest cities, people do not know they’re an option since customers wouldn’t see their flights in a search. As a result they’re missing half the point of sale in many of their markets.
- International partnerships. For several years the airline has toyed around internally with partnerships instead of going it alone. Southwest does some modest international flying to nearby destinations, but lacks the broad network reach of their large competitors. They cannot sell tickets to even their most frequent flyers in their home markets who are looking to connect across the Atlantic, Pacific, or to South America. They don’t get connecting traffic from foreign airlines who bring their own customers to the United States. And that puts them at a competitive disadvantage, missing out on business that United, Delta and American take advantage of.
- Premium products years ago I suggested to Southwest executives that they consider at least allowing their top elites (the upper slice of A List Preferreds, for instance) to utilize a companion pass to book themselves a second seat, and to make it easier to purchase one. People wants to pay for a better experience and not leave it to chance.
The airline is now talking about more legroom seats and greater seat width, such as through blocked middle seats. And doing this requires at least some assigned seating (you need to pre-assign these in order to sell them). Southwest is taking it further, planning assigned seats throughout their cabins.
Whether over the long-term or as a temporary consumer shift, people have been interested in spending more for premium products and Southwest hasn’t had these to sell. Even if it’s temporary, and ‘first class demand’ doesn’t sustain, the ability to buy up in a flexible configuration to guarantee more space makes Southwest attractive to many customers. And the ability to ‘upgrade into’ these seats creates a strong loyalty benefit. Having an offering in this space makes a lot of sense.
During the airline’s second quarter earnings call they suggested they would still offer free checked bags.
- The airline carries a lot of bags, about twice the industry average compared to legacy carriers and three times versus ultra-low cost carriers. Southwest sees that as proof their customers like that bags fly free.
- They also see it as bringing bags out of the cabin, which speeds up boarding and deplaning and leads to cost-saving efficient use of aircraft and favorable schedules that can earn a revenue premium.
- They said they are not looking to change bags fly free since it’s a “big part of what attracts people to Southwest.”
That said, any basic economy-style product might limit passengers to one free checked bag instead of two, reducing the gap between Southwest and peers when displaying fares through broader channels (especially valuable if DOT fee display rules do not survive). It might also involve boarding last (though this matters less with assigned seats) and have last choice of seats, and perhaps change restrictions as well.
‘Bags Fly Free’ also puts Southwest at a tax disadvantage. The federal government charges a 7.5% excise tax on domestic fares. Fees that are outside the base fare don’t get taxed. Delta, United and American characterize $1 to $1.3 billion apiece in revenue as bag fees. That saves at least $75 million per carrier in taxes. By bundling checked bags with fares Southwest loses this.
It’s important to remember, though, that surveys aren’t always meant to find out what to do. Often they’re intended to build ammunition to support what you already want to do – or not do.
With Elliott Management breathing down their neck and in a proxy fight, and with financial performance lagging, CEO Bob Jordan needs arguments to support any preferred course. Elliott wants to appoint industry veterans from a wide variety of carriers and related companies to the Southwest board loyal to them. They argue Southwest is insular. But while the airline has been slow to change, shielding from the rest of the industry’s bad ideas and collective folk wisdom is also a benefit.
Bringing on experience from United, Air Canada, JetBlue and McKinsey which these board candidates represent isn’t an obvious path to financial success. Turning Southwest into JetBlue – a clone of the average player in the industry, but without significant international joint ventures – is obviously not a path to financial success.
(HT: @crucker)
The things that would keep me loyal to WN are:
1. Keeping their Companion Pass program unchanged
2. Keeping it so there’s no such thing as a totally nonrefundable ticket, i.e. the funds can be used for future flights with no expiration
3. Keeping it so flights booked with points are still totally refundable if canceled by shortly before departure
I don’t care about reserved vs “cattle car” seating, nor do I care about free checked bags.
Can’t they just raise their fares and still say that bags fly free?
I would agree with your assessment that this is just so WN leadership can say customers think it’s a bad idea. Knowing WN, they also probably think they’re being very clever.
Hard to know why they are data mining this. Possibly there’s investor pressure to charge for what every other airline in the US is charging for and management wants to show investors this could be a sh$t show if instituted. As far as “we charge more but allow free bags” the consumer is so dumb today they just look at fares and don’t realize if they go with Airline “X” they either must have only carry ons (not easy with a family) or end up spending more with checking bags. A moderation to that are the free gate checked bags at the legacies assuming the bags are such they can go through TSA as carry ons.
Matt…that’s what Southwest does today…which is why they are getting killed.on the “low fare” comparison. The two “free” bags are priced into the fare which often results in being higher that comparable to tickets on other airlines…
Southwest could differentiate by rewarding those who check bags vs those who carry on …or give boarding preference to those who don’t have crap for the overhead….after all…part of their model relies on efficient turns of the aircraft and people lugging their possessions on board slows things down. But …it’ll never happen.
If SWA takes away the 2 free bags AND keeps the substantial annual fee on its (my) Priority RR card with no “free bag/s” as a benefit, I would very seriously consider dropping my card account. Why keep it when I have other (airline) cards which allow a free, full sized, checked bag on any flight (with a branded card)? There has to be something to reward “loyalty” to the brand.
Looks like the evil Predator is still spewing fire. In a perfect world, Southwest would be able to take delivery of the planes on order from Boeing in order to get back on track, people who think they are the most important passenger ever to fly on any airline would get a reality check, and everyone would stop the incessant whining. Alas, the world is not perfect and the Predator is still lurking.
if you check the fares that southwest with competing airlines your bag fee is included in the
fare even tho they continue to say bags fly free… just check most routing out and you will see
a difference usually $50-$75 higher fare on southwest.
I have been flying Southwest monthly and quarterly for over 15 years, rarely checking a bag. But I checked two this past Tuesday.
I like unassigned seating, and I get my preferred seating at least 80% of the time.
I stopped checking other airlines because of the whole seat assignment, awkward boardings, and bad fees.
So if Southwest moves assigned seats, esp with fees, and bag fees, I will ship all of the other airlines.
“But the DOT rule has been enjoyed by a federal court …” Why is the court enjoying something? Why are they not serious?
Even though you mention that Southwest lacks international connections, for me, it is the best airline for positioning flights to connect to international flights. As an expat, I almost always fly in and out of the US with lots of luggage (gifts and such on the way in, favorite American foods, OTC meds, shoes, etc on the way out). Using Southwest has several benefits in this situation: first, my two checked bags per family member from the international flight can continue on without additional fees. This is huge! Secondly, with Southwest´s flexible change policy, we can easily change our flight at the last minute if our incoming international flight is delayed, which really takes the stress off. This also allows us to book aspirationally tight connections and then change as needed, as opposed to a guaranteed LONG connection to allow for delays etc. In short, even as someone who only uses Southwest 2-4 times per year now, I would be very sad to see them change the policies that make them such a unique and perfect fit for our needs.
The only three words in Elliott Capital Management’s report that matter are “unlevered balance sheet.” None of the rest matters. It’s a distraction. They want to load up Southwest with debt, pay out a special dividend or do a share buyback, and then bail. They don’t actually care what happens to the business beyond that.
As a customer, why would I put up with Southwest’s goofy operations, weird sales channels, and poor operations if I didn’t get anything more? Southwest has more legroom and free bags, and I book them when these are more important to me than the downsides.
“Bags Fly Free” (and a few variations, like “Free Bags Fly Here” and “I Carry Free Bags”) was a marketing campaign from 2010.
https://www.travelweekly.com/Travel-News/Airline-News/Southwest-steps-up-free-bag-ads
Reneging on this would seriously damage the Southwest brand.
I could see reducing it to one bag. Though I don’t know how much incremental revenue charging for the second bag would generate. I will say, my daughter flies from NYC to home here in Dallas and exclusively uses WN for the free checked bag. If that was taken away, they could easily lose her business (or they might have to discount fares a little). I know WN is under pressure from Wall Street and Elliott, but, IMHO, they are playing with fire a bit. Not sure their “average” flyer is going to care about some of the “enhancements” and thus, it might not generate as much revenue has they hope.
As someone who checks a bag about once a decade and rarely flies SW due to their typically higher prices, I would love to see the free bags unbundled if it meant more competitive fares. My only other blocker was no assigned seating, which they will be addressing shortly. They have a great network of domestic routes so I could see myself becoming a frequent flyer with assigned seating and more of an à la carte pricing model. I despise paying for bundled features I don’t require or use.
I really like the user friendliness of the SW website. So easy to book and cancel, and change flights, and click for the lower price. Unassigned seating makes the whole system seem unfair with SW having about 3 times more pre-boarders than United, the other airline I fly frequently. I don’t check bags so getting rid of 2 free checked bags would lower the price of my tickets. 1) Reducing the number of pre-boarders by getting rid of unassigned seats, 2) getting rid of 2 free checked bags and 3) not giving a free extra seat to obese passengers would lower the price of fares for >95% of everyone. Hope SW makes the changes as I have more SW points than United points.
Elliott, in their quest to make a buck, is going to turn Southwest into just another airline with no differentiators to appeal to customers.
Activist investors ruin everything. People can’t just leave well enough alone because they want to squeeze a few extra pennies out of something. Goddamn vultures
Most of the negative comments about assigned seating and bags flying free appears to come from people who don’t fly southwest and are not regulars on the airline so they’re comments to me are ridiculous… They aren’t going to fly southwest no matter what Southwest does because they are FF on other airlines with perks they are t about to move away from! They have way too much invested, so trying to gather their business by assigning seats or giving them free bags isn’t going to interest them no matter what Southwest does.
For those of us who DO fly Southwest On a regular basis, we do it because we like the airline just like they like the airline they belong to. Changing the Southwest “brand” will be the death of Southwest and perhaps as someone alluded to earlier, that’s exactly the plan Elliott has in mind. Fill their own pockets and sell off when they see they’ve made a mistake and the airline goes bankrupt because of their changes.
Elliot doesn’t give a rats patootie about the culture, the regulars that fill their planes – And nearly every plane I am on is full to the brim ! – or anything but making money. That’s what investors do. If they ruin the airline in the long run, they couldn’t care less and that’s exactly what they will do… sell off and move elsewhere.
Most of the people that complain about NON assigned seating and free bags as well as all the other changes would NOT fly Southwest if they had Everything these investors want to do. Southwest is not going to be the businessmen’s airline no matter what they do. You have the big 3 airlines that already do that And they’re struggling to stay ahead. No matter how Southwest changes, they aren’t going to get that piece of the pie as it’s already proving to be not working so great at the big 3! People are paying more there and hating the airlines more every day They nickel and dime people to death to stay afloat and spending billions upgrading their planes to accommodate that section of business. Why would any investor think Southwest should join that mess when they have people that LUV the airline and fly it because they do. The people that work for Southwest love their jobs and the people that fly them know they do which is why they continue to fly them.
I have been 1 million miler on DELTA for many many years and still hold way too many miles with them. I much prefer to fly Southwest whenever I can. It’s my 1st choice because Southwest treats their people well, and they in turn treat passengers well, which is something I can no longer say about DELTA.
I never check a bag and consider it nothing more than a hidden cost. I also dislike it as a “perk” on credit cards. I would give up that benefit and swap it out for a “free” seat selection. That has more value to me.
@Hashi you made a lot of assumptions about what other travelers might or might not do, and in my case, you were 100% wrong. Best to stick to what you know for a fact. As I stated earlier, I will absolutely consider flying SW once they roll out assigned seating (already in the works), as long as fares are competitive. Unbundling free checked bags may help to bring base fares down. I have zero allegiance to any particular airline and will always pick the most affordable option that offers the services I require, while avoiding any with practices I find intolerable. Right now that includes every airline EXCEPT Southwest. Once they offer assigned seating so I can avoid the cattle call, I very much look forward to adding them to my list of options, and any additional changes they make to bring down fares is a positive in my book.
Assigned seating means shit seating for all those last minute flights for clients, and shit pricing if there is a decent seat available since it’s always a premium seat. Southwest offers a particular product that no one else does, and it works for many people. They’ve operated profitably this way for a long time because it works
I agree with @Solo Traveler. I have never flown Southwest and won’t even consider them until assigned seating is in place. I’m not loyal to any airline.
My home airport is a hub to no one, yet all the majors fly here except for B6. Southwest has the most flights out of here than any other airline and I will happily take a connecting flight than step foot on their plane because I absolutely hate their boarding process and seating policy.
When they change things, I will start flying with them more often.
I will only fly Southwest even though I almost always have to take a connecting flight. I would rather change planes than fly any other airline direct.
—their employees are the best- funny and friendly
-I loved the open seating and am very sorry they changed this. It was always easy to find a seat you wanted
– free checked bags- so nice not to have to lug a carryon around the airport to save money not checking a bag
– and the absolute best reason is the no change fee and ability to change flights up until the flight. Takes SO much stress away from booking and traveling. I lost so much money with Delta and United before I discovered Southwest when plans changed
-also their app and website are so easy to use
I for one would love to see the charge of bags.The amount of bags is nuts!They are huge, bulky, heavy it’s enough to kill us guys loading them.Really how much stuff do you need to take with you????
The size of the luggage is getting out of hand.
I would say this lower the weight to 50 pounds.One carry on and a medium sized bag for underneath.Anything more and heavier $100. Golf bags as well they are not free $75 because of the size.
Electric wheelchairs should be free for people who can’t walk. Scooters need to be lightweight as well.
What is going on here folks? One traveler above mentions Southwest Airlines (SWA) will never be one of the “Big 3” (Delta, American, United)….I couldn’t agree more. And why would they want to be? It’s not a secret….none of these Big 3 are poster children for making money!! The “Big 3” only cater to the business traveler, constituting about 10-20% of customers; customers who couldn’t care less about ticket price or other fees. I was formerly one of those business travelers, traveling for 37 years (and on my company’s nickel, so I didn’t give a s**t about price). Traveled them all…Delta, United, American, and even those no longer around (Pan Am, Eastern, etc.). I remember the days when none of them charged fees for bags, changes, cancellations, etc. But then………
………the 2008 financial crisis happened, which included a quintupling of crude oil prices (up to $127 a barrel). To minimize losses on fuel costs, airlines jumped on the idea of charging for bags. That was 16 years ago, but despite oil price stabilization today, airlines are still charging for bags. It’s complete BS, and certainly no way to treat or keep customers. We all know oil prices can (and very often do) quickly and significantly change. Ok fine, so be it….then charge more for the base fare during times of high crude price, and less during low crude price. But charging for bags whether the price of crude is $21 or $121 is just PLAIN WRONG!!
And that’s where SWA shines. Their “2 bags free” policy stands out as one of the most valuable and popular perks. For me personally, I like knowing that I can check my bag and snow skis (or golf clubs), and not worrying about stuffing a carry-on in the overhead bin onboard. On another airline, nothing worse than finding jam packed overhead bins, with not enough room for my bag…. meaning I end up checking my bag at the gate anyway (and at no cost, because they know they can’t charge at this point). Believe me, I’ve done this probably 100 times on Delta. For those of you who believe SWA “bakes in” the bag cost in the base fare price….I say BS, not true. I comparison shop every single flight I take, and I never find SWA base fare is higher than another airlines “base fare + bag cost”.
As many of you have mentioned above, other great perks on SWA are no change fees, no cancellation fees, and flight credits with no expiration. As much as I travel, these are all huge benefits for me. As for seating, I couldn’t care less, just put me on the plane anywhere and get me to my destination. Not sure why some folks think it’s so important to have “assigned” seating. If you want that, then go to your Big 3 airline and pony up the money for it. And yes, I realize SWA may soon start assigning seating.
In summary, I believe SWA is making a huge mistake if they take away the “2 free bags” policy, or any of the other aforementioned perks. That’s what sets them apart. Eliminating these perks will mean the loss of 80-90% of their exclusive and loyal customers…..in other words, the death of the Southwest Airlines brand.