Southwest Airlines starts charging for checked bags on May 28th. That’s just days away. And they still won’t say how much checked bags are going to cost!
Surely the systems are already programmed (or are they?) They certainly know the pricing. They just won’t tell customers what to expect.
The airline that used to promote ‘transfarency’ now won’t even be transparent about the way they’re gutting their core value proposition.
The airline is walking away from its unique selling proposition
At precisely the time in the industry that product differentiation, rather than just schedule and price, has started to matter most.
The tax code encourages airlines to charge separately for checked bags, and Southwest Airlines was easily leaving $75 million in tax savings on the table each year by refusing to do so.
Here are the actual problems Southwest Airlines faces:
- Southwest hasn’t had the flights people wanted to buy. The airline flies largely domestically, with some close-in international. They haven’t been able to take advantage of the boom in long haul international. They don’t even have partners to sell flights on that would help here.
The airline only flies Boeing 737s. They can’t take advantage of demand from small cities. There’s been too much domestic capacity, and that’s hurt domestic-focused American Airlines. But American Airlines has regional jets that connect passengers out of small towns and fill up larger planes, while Southwest Airlines can’t.
- Southwest hasn’t had partnerships and couldn’t sell tickets to far flung destinations that its customers wanted to buy, and was losing out on revenue that foreign carriers would bring when their passengers needed U.S. domestic flights.H
- Southwest hasn’t had the product people wanted to buy. The past couple of years air travel has seen significant growth in premium demand. But Southwest doesn’t have extra legroom seats or first class. They don’t have lounges. Their business model was built to be efficient and egalitarian.
- Southwest hasn’t had the distribution insisting on selling its flights almost exclusively through its own channels. As the airline expanded to new cities, customers in those cities didn’t know to go look for Southwest flights. Adding Expedia, Google Flights, et al addresses this, but makes Southwest look more expensive than major airline basic economy, hence the pressure to unbundle.
Each change that Southwest needed to make adds complexity and cost, and the airline has already seen rising costs especially labor. They became bloated. So the Elliott Management case that something was broken was strong. The solution? They simply said ‘become like JetBlue and American Airlines’ with checked bag fees and basic economy, which is a recipe for financial underperformance at JetBlue and American Airlines. Of course making the case for change has meant financial shenanigans like selling planes (and in some cases leasing them back) to raise borrowed cash for share buybacks.
And while they did become top heavy with staff, they’ve had a hiring freeze which could have reduced head count. Instead they reverted to mass layoffs for the first time in their history after cutting investment in employee morale-building events.
The airline’s CEO Bob Jordan has essentially capitulated to activist investor Elliott in order to save his job, but at the expense of the airline’s culture and product differentiation. These changes won’t make Southwest Airlines better. Southwest had problems – Elliott and everyone else in the world observing them were not wrong – but there are no solutions to bring Southwest back to its earlier growth days because the model has simply run its course.
They have maxed out the ability to grow with a single fleet type, distributing tickets through their own channels, going it alone with a simplified product. So any future will be a lower growth, lower stock multiple, less valuable one. But that doesn’t have to mean doubling down on the race to the bottom, which is why it’s sad to see today’s change.
Ultimately what this underscores is that there is no returning to the differentiated airline business model that gave Southwest significantly higher earnings multiples, catapulting their stock beyond peers, and generating decades of consistent profits.
Nobody had solutions, so they gave up and did what everyone else does which is what company executives do to protect their jobs. They stopped sticking their necks out, because they might get chopped off. Southwest is now just like everyone else, but a bit less (they don’t even plan to sell blocked middle seats, let alone first class; they have less valuable miles; they don’t have lounges; their wifi lags the industry). A moment of silence for this once great company.
In the meantime, as checked bag fees roll out to tickets purchased May 28 onward, over the next few months we’ll begin to see everyone trying to carry all their bags on board. That’ll mean more gate checking of bags, which has meant Southwest needed to retrofit gate equipment. This will slow down boarding and delay flights. Good luck out there to Southwest customers!
It seems to me this should not be legal. Fees should be disclosed at the time of booking. Anyone with a fully paid up ticket should not have to pay at this late date.
@David P – fees are based on date of ticket purchase. Tickets purchased prior to May 28 will not have checked bag fees.
What’s the issue? Fares purchased today include bags. When they don’t, they’ll have to disclose the bag costs.
Probably going to get some great Youtube airport meltdown videos when Al and Peg Bundy along with Kelly and Bud are told to pony up $100 for bags that they didn’t expect to be taken out of their Disney budget and/or placed on their growing credit card balance.
I think we may be witnessing the end of WN. They’re going to end up in a merger, broken up, or something. Imitating the industry laggards isn’t a good strategy.
Hate to be “that guy” but I will in this case. “Transfarency” in headline? Do you even run things through a spell checker before posting them?
@AC – Transfarency was literally Southwest’s slogan
I see Southwest as toast
Why would anyone fly them because a few more of their FAs are friendlier than other airlines?
I’d fly Alaska or anyone else once I am paying for everything.
Southwest has the most uncomfortable seat and the only reason to fly them was if they flew a route non stop and the bags flew free with no seat fees
They will become another spirit and frontier and as that reality fast approaches can anyone tell what the point is to choose them? They frequently are higher priced on revenue or points
I don’t get what they are doing.Buying tickets and earning points yields you next to nothing.
All that said domestic air travel is down and new headwinds may be coming as a wave of uncertainty comes down the pike
Scary stuff for a once solid airline for what it offered
Bad timing and all at once
Flew Southwest across the country without power or wifi that supported anything but email and text. Planned to work from the plane, really not possible. But hey bag fees, sure sign me up!
What a clown show!
Gary and Bob have really left a mess.
Wrong revenue strategy, wrong tax strategy, wrong CAPEX strategy, reactive IT strategy, dated route strategy, wrong fleet strategy, wrong distribution strategy, inferior seats, no power outlets, horrible boarding process and now rewards program.
Otherwise, Bob is doing a great job…
Since Southwest isn’t saying, I expect it to be expensive. On the order of $50 per bag, with a likely announcement that carry-ons will be charged (at $75 or so) in the not too distant future.
Southwest used to have a few advantages, but those have deterioriated over the years. They’re going to lose a few more with the new changes.
1. Lower fares. They used to be the cheapest game in town that offered decent service. That ended years ago, as the Big Three were often the same price or lower for better service.
2. Free bags for the occasional flier, but if you were smart enough to get the CC of your hometown’s biggest carrier, you more than paid for the CC fee.
3. No assigned seats was a major downside for the regular flier, who could get free preassigned seats by holding the right card or status. The cattle call was a major turnoff. Preassigned seats will but an upgrade, but depending on the price, may make SW less attractive.
4. Southwest offered more non-stops than the majors between smaller cities. Being less hub & spoke, they still have this, and I know some business flyers who valued this highly, but if they cut that back, they’ll lose one of their few remaining advantages. If I wanted a non-stop from STL to LAS, Southwest was my only option short of Frontier or Spirit. But AA often had better prices and decent service connecting in Dallas. Add in AA had lounges in STL, plus I had a chance at an upgrade, and I’d take the long route. But, I just bought SW for BNA-ALB and BNA-BDL because they offer the only non-stop, and 2.5 hours is better than 5+ hours for a business trip.
Right now, I view SW as a necessary evil that I fly only when I have to, but if it gets even more expensive, the reasons to fly them get even fewer.
Does AC not understand the use of “…”? I’m sure his apology to Gary is forthcoming.
@Dwondermeant…
The only thing left, and why I still fly them, is the Companion Pass. Hard to beat 2 for 1 ticket costs.
I hope they go all in and make it $100 per checked bag! That way, passengers will finally learn the true value of minimalist packing. Plus, think of the workout everyone will get hoisting overstuffed carry-ons into the overhead bins. Who needs a gym membership when you have Southwest-induced weightlifting?
Given Southwest antiquated software. This will be a mess. On time will not happen. Activists investors don’t improve companies, maybe share price but not company. I live near BWI so a prisoner to southwest. Will be looking at other airlines, especially if I’m flying into their hubs.
When comparing current WGA fares between the Bay Area and Chicago, WGA fares on Southwest (the fare bucket that becomes economy) are much more expensive than the basic economy, and even many regular economy fares, on other airlines. Unless Southwest significantly lowers the cost of their basic economy fares, I don’t understand why it makes sense for anyone to book with them. This is just a sample route, but my guess is that this type of issue is the case for many other routes as well.
Regardless of the underlying atrocities, you gotta admire the word choice: ‘transfarency’ is brilliant. I mean, here it is an obvious farce, but still, it’s a top-notch pun, and I’m all for that. Let’s be clear though, Elliott (mis)Management didn’t come up with the word; they just did the bastardizing. Vultures gonna vulture…