Southwest Airlines shifts to paid baggage policy to lift earnings

By Rajesh Kumar Singh

CHICAGO (Reuters) - Southwest Airlines (LUV) chopped its portion gross maturation forecast connected Tuesday, citing weaker discretionary spending amid tariff pressures and authorities spending uncertainties affecting home travel. The bearer present expects first-quarter portion gross maturation of 2% to 4%, down from its erstwhile estimation of 5% to 7%.

The radical besides announced plans to commencement charging immoderate customers for checked bags, ending its long-standing escaped argumentation arsenic it looks to boost earnings.

The determination marks different displacement from Southwest’s passenger-friendly approach. Last year, the hose said it would extremity unfastened seating, a cardinal portion of its marque for implicit 50 years.

Its "bags alert free" argumentation has been an outlier successful the hose industry. Southwest is the lone large U.S. bearer that allows customers to cheque 2 bags astatine nary cost, a strategy that institution executives person said differentiates it from rivals.

But the argumentation would alteration connected May 28 arsenic lackluster net person fueled unit to revamp its concern model. CEO Bob Jordan has acceptable a extremity to assistance Southwest's operating borderline to astatine slightest 10% successful 2027 from 2% past twelvemonth - a modular investors had travel to expect from the hose earlier the pandemic.

The argumentation displacement suggests a increasing power of activistic capitalist Elliott Investment Management astatine the airline. The hedge fund, whose nominees clasp 5 of 15 committee seats, had criticized Southwest's enactment for not charging a interest for checking bags similar different airlines to boost its revenue.

Under the caller policy, the hose volition proceed to connection 2 escaped checked bags to loyal customers with the highest status, A-List Preferred, and passengers who wage the astir premium fare.

Customers with little loyalty status, A-List, volition get 1 escaped checked bag. The bearer volition recognition 1 checked container for passengers who clasp its co-branded recognition card.

Those who bash not suffice for its escaped container options volition beryllium charged for their archetypal and 2nd checked bags.

Southwest said the changes are aimed astatine rewarding its astir loyal customers and shoring up profits.

The caller container argumentation comes weeks aft the hose carried retired the archetypal company-wide layoffs successful its astir 54-year history.

Baggage fees produced much than $7 cardinal successful gross successful 2023 for large U.S. airlines, but Southwest generated conscionable $73.4 million, according to the Bureau of Transportation Statistics.

Until now, the hose had been resisting capitalist unit to commencement charging for bags, saying its information showed that a no-bag interest argumentation was the fig 1 crushed customers chose it.