Analysts slam Southwest outlook amid bag fees

Fitch says that the changes "risk eroding Southwest's competitive strengths."

Apr 8, 2025 - 18:02

Analysts slam Southwest outlook amid bag fees

Starting from May 28, Southwest Airlines (LUV) passengers will no longer get to benefit from a longtime perk that earned the Dallas-based airline their loyalty.

While Southwest has for decades allowed travelers regardless of fare class to check two bags weighing up to 50 pounds each for free, the new policy will require all but passengers in the highest fare class and status holders to pay $35 per suitcase.

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'Risk eroding competitive strengths relative to peers': Fitch

The old policy used to be so core to Southwest’s marketing and image that the airline trademarked "two bags fly free" as its official motto.

While the austerity move came from hard pushing from new majority investor Elliott Investment Management, the decision to start charging for bags caused a passenger outcry and risks stripping the airline of the competitive advantage for which many chose to fly with Southwest.

"Items aimed at improving profitability such as the introduction of bag fees and expiring flight credits risk eroding Southwest’s competitive strengths relative to peers," Fitch Ratings said in a negative ratings outlook for the airline.

In February 2024, Southwest has also replaced its signature open seating model with one where customers have to pay for seat selection like with any other carrier. It has also scrapped its Wanna Get Away fare for a Basic one that no longer includes free changes and cancelations.

The airline has declined to comment on the new Fitch outlook. Other ratings agencies such as Moody's have earlier also lowered their financial outlooks for Southwest.

Southwest CEO Bob Jordan lived to see another day as CEO amid a large executive overhaul to appease investor Elliott.
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Why has Southwest made all these changes? It's been bleeding money

All this comes at a time when Southwest Airlines has been posting negative quarter after negative quarter throughout 2024 and felt increasing pressure from Elliott to change its strategy or risk seeing its leadership gutted.

To appease Elliott after it repeatedly chastised Southwest for its "poor execution and stubborn unwillingness to evolve", the airline cut 15% of its corporate workforce and pushed out senior leaders like Executive Vice President Ryan Green and Chairman Gary Kelly earlier this year. CEO Bob Jordan, whose ouster Elliott has repeatedly called for throughout 2024, managed to survive with his job intact even as pressure for further cost-cutting continues.

While the last earnings report released in January showed an operating revenue increase of 1.6%, Elliott has been pushing for better results faster (the investor owns enough shares to call for a board vote to oust executives and make other key business decisions). Year-over-year, Southwest shares are down by nearly 24% to $25.40.

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"What's changed is that we've come to realize that we need more revenue to cover our costs," Chief Operating Officer Andrew Watterson said of the changes to the bag policy when they were first announced. "We think that these changes that we're announcing today will lead to less of that share shift than would have been the case otherwise."

In its negative outlook, Fitch also added that "Southwest may shift to a less conservative capital allocation and financial policy, while ongoing strategic changes have the potential to impact its competitive position relative to network carriers."