Southwest’s Gamble: It’s Now Just Like Every Other Airline

Southwest, once a disruptor, is starting to look a lot like other airlines.

“Two bags fly free,” was a trademarked slogan for Southwest and a core part of its brand identity. The announcement Tuesday that it would add bag fees is only the latest in a long list of changes that bring it in line with other carriers.

Executives announced last year they would get rid of its open boarding process in favor of assigned seating. Southwest flights are now available on Google Flights and Expedia, which the carrier had resisted for years. It will have a nonrefundable basic economy fare – like every other airline — replacing its Wanna Get Away fare, which allowed for free changes and same-day standby tickets.

The carrier, also long known for its friendly company culture, conducted its first-ever layoffs last month.

It’s a risk for Southwest.

When the news was made public, customers — even loyal ones — took to social media to voice their displeasure with the change. Some loyal flyers said that even though Southwest is their preferred airline, they don’t fly often enough to earn top tier status on Southwest Rapid Rewards.

And Southwest executives had stressed the power of no bag fees – both for the brand and the bottom line.

“We’re not looking at this point to change that policy,” CEO Bob Jordan said during an earnings call last July. “Our industry-leading set of initiatives of customer-friendly policies, and you know the list, is a big part of what attracts people to Southwest Airlines. And after fare and schedule, bags fly free is cited as the #1 issue in terms of why customers choose Southwest.”

Jordan said last year that Southwest would gain $1.5 billion in revenue if it implemented baggage fees, but it would be offset by $1.8 billion loss in market share.

Southwest ad from 2021. Source: Southwest/Facebook.

Some argue that these changes are necessary for Southwest to adapt to a more competitive consumer landscape. The carrier’s profitability had been lagging in recent years due to changing consumer preferences on premium products and international travel. Boeing delivery delays have also hampered operations. Costs have increased sharply as well.

Southwest started operating red-eye flights and cut capacity in unprofitable areas to adjust to the post-pandemic landscape. It also launched a partnership with Icelandair to offer its customers more international options.

Elliott Investment Management, which had built a nearly $2 billion stake in Southwest, pressed for many of these changes. The hedge fund said it believed bag fees, basic economy, assigned seating, and premium products would boost Southwest’s profitability.

But Elliott also wanted to oust Jordan and former chairman Gary Kelly, who retired from the post last year. While the two companies reached a settlement, with Elliott gaining five seats on Southwest’s board and Jordan staying on as CEO, it seems as if much of Elliott’s original demands have been met.