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Southwest ( LUV ) to charge for checked bags starting May 28

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New fees aim to reward loyalty and boost profits

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Baggage fees could add $1.5 billion revenue annually

By Rajesh Kumar Singh

CHICAGO, March 11 (Reuters) - Southwest Airlines ( LUV )

said on Tuesday it would start charging some customers for

checked bags, ending a unique free policy, as the company looks

for ways to shore up its earnings.

The changes mark yet another departure for the Texas-based

carrier's passenger-friendly policies. Last year, Southwest ( LUV )

announced plans to end open seating, which had been central to

its brand image for more than 50 years.

Its "bags fly free" policy has been an outlier in the

airline industry. Southwest ( LUV ) is the only major U.S. carrier that

allows customers to check two bags at no cost, a strategy that

company executives have said differentiates it from rivals.

But the policy would change on May 28 as lackluster earnings

have fueled pressure to revamp its business model. CEO Bob

Jordan has set a goal to lift Southwest's ( LUV ) operating margin to at

least 10% in 2027 from 2% last year - a standard investors had

come to expect from the airline before the pandemic.

The policy shift suggests a growing influence of activist

investor Elliott Investment Management at the airline. The hedge

fund, whose nominees hold five of 15 board seats, had criticized

Southwest's ( LUV ) leadership for not charging a fee for checking bags

like other airlines to boost its revenue.

Under the new policy, the airline will continue to offer two

free checked bags to loyal customers with the highest status,

A-List Preferred, and passengers who pay the most premium fare.

Customers with lower loyalty status, A-List, will get one

free checked bag. The carrier will credit one checked bag for

passengers who hold its co-branded credit card.

Those who do not qualify for its free bag options will be

charged for their first and second checked bags.

Southwest ( LUV ) said the changes are aimed at rewarding its most

loyal customers and shoring up profits.

The new bag policy comes weeks after the airline carried out

the first company-wide layoffs in its nearly 54-year history.

Baggage fees produced more than $7 billion in revenue in

2023 for major U.S. airlines, but Southwest ( LUV ) generated just $73.4

million, according to the Bureau of Transportation Statistics.

Until now, the airline had been resisting investor pressure

to start charging for bags, saying its data showed that a no-bag

fee policy was the number one reason customers chose it.

Last year, it said while charging for bags could bring in

$1.5 billion in additional revenue every year, it would cost the

airline $1.8 billion in lost market share.

At its investor day last September, Southwest ( LUV ) had warned

that eliminating the "bags fly free" policy would have a

significant impact on its brand as it would no longer be

perceived as "customer first."