Southwest is going to charge for checked bags and start expiring flight credits and introduce no seat assignment basic economy.
That means the end of a ‘differentiated product’ for the airline, and when they’re just like everyone else it becomes obvious that their product is at the bottom of the pack. Yet once most of the decisions have been made, maybe it actually makes sense to charge for checked bags?
There are several (obvious) reasons why charging for checked bags is going to be hard on the airline.
- It was a real product differentiator. Customers chose Southwest because of this benefit, they usually booked direct (lower distribution cost), and Southwest will lose ticket sales because of it. The airline recently estimated that they’d generate $1.5 billion from the change, while losing $1.8 billion, for a net loss of $300 million.
- It makes their flying less efficient. People are going to be bringing on a lot more carry-on bags, as they try to avoid checked bag fees. Currently Southwest checks more bags than anyone else – by a lot. Pushing bags into the cabin slows down boarding. It means longer turn times, at a time when the airline has been saying their path towards profitability is more efficient and shorter times on the ground that lets them fly planes more and generate more revenue without greater capital expense.
- It is going to mean a lot more unhappy customers in the cabin, and delayed flights. All those carry-ons will mean full overhead bins and customers having to gate check bags, something that is a problem on other airlines but much less often on Southwest. Gate checking bags is also going to mean short flight delays, perhaps dethroning Southwest’s reliability achievements.
Yet there’s actually a strong case for charging separately for checked bags at Southwest Airlines, once management capitulated to all of the other changes that their new bosses demanded. There was simply no longer going to be enough differentiation at the airline for checked bags to create enough customer loyalty to outweigh the benefits.
- They’re already changing the product in multiple ways, for instance they’re going to charge for seat assignments, which also reduces the incentive to queue up before the flight and board quickly. The product is already going to be less small-d democratic with extra legroom ‘premium’ seats and other seats that have less legroom than today on many aircraft.
- Their fares are going to be compared against restricted fares at other airlines. They need to distribute their fares more broadly. Customers in places like Dallas, Houston and Chicago know to go to Southwest’s website to search for tickets. But in smaller markets there isn’t the same awareness. So smaller newer markets are dominated by passengers living at their hubs, rather than being spread more equally on both ends of a route. Distributing through Expedia, Google Flights, et al will help – but means that Southwest fares will be directly compared against airlines offering basic economy and unbundling services, creating an incentive for Southwest to match fares with similar restrictions.
- $100 million in annual tax benefits. Domestic airfares are subject to a 7.5% federal excise tax. Unbundling the fare means the money they collect that they call fees they keep in full, rather than turning over to the feds. Southwest has been giving up this tax benefit by not charging for bags. They estimate $1.5 billion in checked bag fees, but not all of that is for domestic flying. Order of magnitude tax savings will be $100 million. If you don’t like checked bag fees at any airline, blame your Congressperson for incentivizing the charges.
If checked bag fees will no longer be enough to differentiate Southwest, they might as well pick up any incremental revenue there may be from unbundling since the amount of lost revenue has already been reduced by each of the changes they’ve decided to make! And there’s no longer a reason to leave the tax savings on the table. The federal government is subsidizing their decision to charge for checked bags.
This all leaves the airline in a rather troubling predicament, however. Outside of Companion Pass, the loyalty program is not generous or especially rewarding (and becoming even less so). They’re trying to mimic JetBlue and others with an inflight product that is inferior.
- No first class, no blocked middle seats, no hot meals
- No seatback entertainment, and device power is USB-only and only on some planes
- Wifi isn’t free, and functionally performs worse than with any other U.S. carrier
- Legroom is being reduced on planes to make room for the extra legroom seats they plan to sell
That leaves Southwest’s only compelling value proposition as schedule and price. If you live in St. Louis or Kansas City you’re still going to fly Southwest a bit! But anywhere that they compete against Frontier (or even troubled Spirit) they’re going to have difficulty, because their costs have risen markedly – and even Spirit offers good wifi and something of a premium product offering now!
Maybe Southwest Airlines is turning itself into a worse version of Spirit – without the low costs or low fares – but at least they’ll have the $100 million tax subsidy.
Scale is the key to profitability and that is what the non- frequent flyers deliver. Other flyers force SW into price competition with airlines that have better aircraft layouts. SW looses. Geometrically the shortest distance between two points is still a straight line. This would be SW’s competitive advantage.
Spot on article. My long-term outlook for SW is grim. At best, SWA will get the 1st yr. Boost in profits from the cuts (maybe 2 yrs.). Then, you’ll begin to see a scramble for the exits by early investors. Followed by new management to stop the bleeding. And, that is also the precursor to bankruptcy. It’s a money grab not a “saving” of an airline. And, Wall Street know this.
The new business model speaks volumes of how it intends to rape and pillage until there is nothing left. I have over 750,000 RR points and fly myself and employees predominantly with SW. But, no more.
As I see it, it’s time for me to spend my RR points while they’re still worth “less than they use to be”. Why? .. because SW now varies the value of the points based on demand for flights. In short, they instigated their version of black out periods for RR points.
SWA is morphing into the worse with nothing to show as a positive. If I was SWA competitors, I would pounce on their poor decisions and changes with fair wars at key markets: Put them out their misery – early.
A smart man once said … if it ain’t broke
don’t fix it. Additionally, they might want to consider how much longer that federal subsidy will be available.
. I’ve read there is a SW proposal to charge $100 per bathroom use. SW/WN RIP.
Southwest has always bumped up fares around school vacation weeks. This February vacation week pricing was absurd. To simply drive two hours from Manchester, NH to Providence, RI and pay to park for a week, my teacher wife and I saved $1,775!!! And we live 20 minutes from the Manchester airport! I’m shopping for our next vacation, and I doubt SW will be our choice!
Seems like ever since SW merged with AirTran it’s hard to get direct flights. Is this going to change? Will more direct flights be ordered? I don’t appreciate layovers
institutional investors are ruining swa in real time!!!
This will work until the current administration guts the tax incentive. The beginning of the end for this once great airline, all at the hands of greedy majority investors.
Getting rid of the reasons to fly SW is going to end them. Why fly them when you can get a better product on another airline, if you have to pay for luggage anyway. They were my go to airline. Now they are just another airline with no “LUV” for the flying public. They better take the hearts off their planes since they don’t mean !##$ anymore
SW cut direct non-stop flights to many routes after the pandemic making clients endure 1 or 2 time consuming layovers. It is difficult for me to arrive at a same day meeting or appointment now. As an A lister frequent flyer, time to look everywhere.
This is why most people probably fly south west. I think they are about to shoot themselves in the foot with this one. I stopped flying with they after the 737 max thing. I quite frankly will never fly on one of those max aircraft. I don’t care how safe they say they are now.
Put me on their “won’t fly list “. Out of Phoenix SW was the best option. I’ve flown them for years. Just proves there is idiotic morons in every business. So long Luv.
SWA is losing their brand identity.and they will soon just be a competitor to Spirit Airlines. Their only differentiation will be the routes that they fly. It is sad to see a robust, viable airline product start to circle the drain. I am pretty sure that Herb Kelleher is turning over in his grave.
I liked SW because of their leg room. It was a bit better than the other airlines. I also loved the no bag fees. I will probably not use SW primarily as I have in the past.
I just think it’s dumb like my family flew exclusively Southwest, literally would not go on another airline unless there was actually no other option because their customer service is pretty decent (or, was) and the flights are on time and they’re always cheap, and you can check bags even though we almost never did. but if it’s literally the same as all the other ones then we’re just going to go online and like find the cheapest one and just pick that one no matter what airline it is.
it makes no sense. I guess they’ll get other people doing that and normally non-southwest Flyers will end up on Southwest if they’re the cheapest one but then they’re not making money because they’re the cheapest flight so what how does this end up doing anything good for them
I have used a Southwest Visa Rapid Rewards card for years. For the last few years, SW fares have no longer been cheaper than others and direct flights to my destinations are no longer available. I recently opened a Capital One Mastercard account and have already accumulated enough points to cover a flight and car rental. I’m done with Southwest. There is no longer any reason to choose them instead of others. In fact, doing so now costs more than almost any other airline, so there is no reason to suffer what used to be minor inconveniences. I was thinking about canceling my credit card account, and they have made the decision easy. I’m gone.
I haven’t even checked fares at other airlines in probably 20 years. When I need to fly I just book Southwest airlines. Occasionally I had to fly another airline, I despise getting charged for luggage.
Now I’ll check other airlines first! Sorry Southwest, not a fan of your new policies.
I’ve flown Southwest exclusively for 20 years unless it was across the pond or a location they didn’t serve. They’re ruining the airline. At this point, the million points I have with them will get used to take free flights until I’m at zero. Then, the loyalty to them is done. What comes next is flying with the lowest cost airline. Southwest eventually will lose customers over this garbage cause I know I’m not the only person like this.
I blew one of Southwest first flights from Corpus Christi to Dallas Texas. Yeah, years ago I have flown Southwest every sense because they knew what customer service was and they value their customers don’t know who the new bosses are but you’ve made a huge mistake. The only way I will fly Southwest now as if they’re the only flight to get me where I need to go.
SWA has high labor costs, so I fail to see how they can compete effectively vs real low cost carriers.
SWA will merge or purchase another carrier in the next few years and things are going to get very difficult for them competing in the marketplace.
Passengers won’t complain about $20 for checked bags, but how will SW recoup the money they lose on unsold “Premium” seats that are normally full.
****If you want to know what is really going on read this article
You will understand that investor Elliot that owns 60 percent of SWA doesn’t care what happens to SWA and is out to have it fail. he will still get to collect his money**** https://www.reuters.com/business/aerospace-defense/southwest-airlines-reports-surprise-q3-profit-improved-pricing-2024-10-24/
@Sandra – Umm Elliott does not earn 60% of Southwest
Aww, I live in St. Louis. But except for work travel, I’d rather pay for the “premium” product on other airlines. If my okay, cheap option goes away.
We don’t fly but a couple times a year, but have flown Southwest exclusively for years. That is over. Not one of their recent money-grab changes benefit customers. I shall mimic their loyalty to their customers, and vote with my feet. Bye Southwest. We will be seeing much more of this country as we begin driving to our state side vacation destinations. Business trips will be supporting a different airline that sees what SW has done and wants to pick up all the customers running from SW terminals.
So much for SW….they’re a JAA….Just Another Airline..
No longer my “go to”…good riddance
About to schedule 7 flights…. going to cheaper Alaska Airlines. Been SWA since 2013. Now price will drive choice but frontier and other cheaper one are not on my list.
For years, I have exclusively flown SW . This will certainly change for me with these new policies. I am handicapped and usually preboarded and was able to sit in the front row for the extra leg room. What happens now? I’ll have to pay for extra leg room! I also used to check my bag so I didn’t have to deal with a carryon. Aside from that, I have noticed that a simple flight from NY to FL now can take up to 10 hours due to no nonstop flights! I fly multiple times a year, guess I will be looking into other airlines in the future. Adios, SW!
Once again, private equity raiders are destroying a once great company. Different industry, but this reminds me of ToysRUs. Money, money, money. Short-term money. Zero sense of legacy and long-term customer loyalty.
I always fly Southwest but this is a game changer! If you’re paying for baggage and they are taking away the other perks, no reason not to shop for better flights! I will be!! I will be canceling my credit card as soon as my balance paid! Whoever made these choices is going to pay for it big time!!
We’ve flown SW for many years from Manchester, NH dor cheap fares, free checked bags and avoiding the Boston traffic. We flew to Atlanta 2 to 3 times a year to visit family unfortunately you have to stop in Baltimore mostly to change planes. 3 years ago bad thunderstorms cancelled 2 of our connecting flights and the 3rd dropped us in Greenville, SC at 11pm and they changed the connection to Atl to instead go to Dallas. No flight to ATL until 6pm next day. The 2 checked bags and no longer cheap seats along with 6 to 8 hours travel drove is to Delta and 2.5 hrs travel. The free checked bags no longer a good deal. The new changes will probably keep us away from SW for good.
For my husband and I, the benefits of free bags, no change fees, no assigned seats, and miles that don’t expire were worth the inconvenience of more layovers when we travel from Florida to Nevada multiple times a year. We didn’t even look at other airlines. Once we’ve used our miles, we’ll be looking elsewhere for more direct flights at better prices. Bye SW, it’s been great for the past 35+ years, sorry to see you self destruct.
I’m one of those people who fly periodically only, and look for best value. SWA often won that contest for domestic flights. Not anymore. Given the ham-handed, no notice changes, I have incentive to NOT use them where possible. SWA is losing my business. What should concern them is there might be 100,000 others like me. Institutional investors probably just really hammered their own investments.
I’ve never flown Southwest Airlines and now never will. Who cares about SW anymore? They are no longer relevant.
@CRS- –Tell me you’re a ‘Republican’ saying so, because ‘it doesn’t affect me personally yet, so I don’t care about this issue’ is classic that ideology. Sir or madame, I may be wrong about you–you might be a flaming liberal–and, if so, shame on you, too. As a consumer and non-oligarch, you should care about Southwest remaining competitive in this market, because further consolidation usually is not beneficial to us. Or, you do you, and also, please continue with the equivalents of ‘I got mine, FU,’ and ‘pull up the ladder behind you,’ and ‘watch the world burn,’ and ‘who cares about the climate, I’ll be dead,’ and finally, ‘Don’t Look Up.’
This is very sad. I always went out of my way to fly Southwest because it was more pleasant than other airlines. It was never the cheapest, never the fastest, and almost always had a connecting flight but I liked it. I’m probably going to take one more flight before everything changes just to say goodbye but I can no longer think of any reason to fly Southwest
All these changes feel like management making LUV a more attractive takeover target by ripping the ‘unpopular changes towards industry norms’ bandaid off. Now their financials will look like everyone else’s so the data guys can value the business. I expect a merger or acquisition in the next few years.
I’ve flown with SW for many years. I have skymiles. What will happen to them. I’ll be looking at other airlines. The free baggage is what sets SW apart from the others. But with the new changes, I’ll be looking elsewhere. Bye SW.
These private equity groups come into companies like JoAnns and Southwest and pillage them. I give SW 10 years max if they can’t get rid of the private equity anchor around their neck. R.I.P. Southwest.
I’m not even blaming SWA. This is all the genius plan of Elliott and they signed their death warrant.
This is exactly what you get when you the only stakeholders that matter are the shareholders. It’ll get picked apart piece by piece, someone else will come along and scoop up the flying assets for pennies on the dollar and one less competitor in the marketplace.
So congrats to America as well. Keep playing yourselves.
It was very disappointing to hear about Southwest making plans to charge for checking in luggage. Might as well start calling it “SOUTHWORST AIRLINES” if it chooses to make changes that will make customers unhappy.
Sad to lose the luv, but this is happening everywhere. Mega funds and private equity and their ‘activists’ are hollowing out and pillaging any and all American companies that have any sort of brand or secret sauce. The strip mining of American businesses is well underway.