(Reuters) - Fitch Ratings on Thursday downgraded Southwest Airlines ( LUV ) to a "negative" outlook from its earlier "stable" rating, citing the carrier's possible shift to a less conservative capital allocation and financial policy.

The credit rating agency adds that Southwest's ( LUV ) lack of progress towards margin improvement and higher capital deployment may drive a negative rating action.

Last month, Southwest Airlines ( LUV ) announced its plans to start charging some customers for checked bags, marking a departure from its passenger-friendly policies, which Fitch believes could risk eroding its competitive strength relative to its peers.

Fitch said it affirmed Southwest's ( LUV ) long-term Issuer Default Rating, which is its outlook on the airlines' ability to meet its financial obligations, at "BBB+".