Southwest Airlines said Tuesday it would start charging customers with a bag check, waiving decades of practice last fall that executives described as the key to distinguishing budget carriers from rivals.
Southwest has built a long-standing advertising campaign on its policy that allows passengers to check their bags free of charge, and those who have not reached the upper tier of the Rapid Rewards Loyalty program, who purchase business class tickets or hold airline credit cards, will have to pay for the check bag.
The airline did not outline the rate schedule, but said the new policy would start with bookings on May 28th.
“There is a great opportunity to meet the needs of our current and future customers, attract new customer segments that are not competing today, and return to the level of profitability that both shareholders expect,” Southwest Airlines CEO Bob Jordan said in a statement.
A year ago, the Dallas-based airline announced it would be repealing an open board system, another tradition that has been in use for over 50 years. Southwest is scheduled to start operating the plane with passengers in their assigned seats next year.
Southwest has been struggling lately and is under pressure from activist investors to increase profits and revenue. The airline reached a ceasefire in October with hedge fund Elliott Investment Management, avoiding the proxy fight, but Elliott won several seats on the Southwest Board.
The airline last month announced it would eliminate 1,750 jobs or 15% of corporate workers, in the first major layoff in the company’s 53-year history.
Jobs that are primarily scheduled to be completed by the end of June are part of a plan to cut costs and turn the company into a “faster, faster, more agile organization,” Jordan said.
Southwest shares rose more than 6% before the market opened Tuesday.
Just like Southwest Investor Day in late September, airline executives described Bagfly Free as the most important feature in distinguishing Southwest from their rivals. All other major airlines have been charged for checked packages, and Wall Street has long claimed that the Southwest has left money behind.
The airline estimates that billing bag fees will bring about $1.5 billion a year in September, but the airline spent $1.8 billion in lost business from customers who chose to fly southwest for generous baggage allowances.
Southwest said Tuesday that if it continues to offer two free check bags, prompt reward A-List priority members and customers will travel with business-selection fares and offer one free check bag to A-List members and other selected customers. Passengers with Rapid Rewards credit cards will receive a credit in one check bag.
Those who do not qualify in these categories will be charged to check their bags. The airline said it will roll out new basic fares with lowest-priced tickets when the changes take effect.
In a regulatory filing, Southwest revealed that it expects first quarter revenue per available seat mile to increase by 2% to 4%. Previous forecasts were an increase of 5% to 7%. The airline said it expects capacity to fall by around 2%.
The airline announced last year that it would have passengers allocated seats, as well as charge additional fees in more legrooms, offering Redeye flights.
Michelle Chapman, AP Business Writer
