Should Southwest Airlines Charge For Checked Bags?

Southwest Airlines is currently completely reevaluating its business model, as the airline isn’t performing as well financially as it used to. While executives have insisted that two free checked bags are here to stay, is that actually sensible? I wanted to unpack that a bit…

Southwest is undergoing major changes

It’s an interesting time at Southwest. Historically, the carrier has had the best financial performance of any US airline, and was most consistently profitable, even during challenging times. The carrier largely did this by not looking at what the competition was doing, and by keeping a steady business model.

However, times have changed. The US airline industry is more competitive than ever, and demand patterns have shifted, with a heavy focus on premium leisure and long haul demand. Southwest isn’t as profitable as it used to be. Management has been working on making major changes, and is now under even more pressure, after an activist investor swooped in, pushing for radical changes.

Southwest’s current management team has already committed to introducing assigned seating, adding an extra legroom economy cabin, starting redeye flying, and listing flights on airfare comparison fares.

However, CEO Bob Jordan has made it clear that the company’s generous two free checked bags policy on all fares would continue to be offered, and the airline wasn’t considering changes to that. As he stated at the time, “after fare and schedule, bags fly free is cited as the top reason why customers choose Southwest, so it’s not under consideration right now.”

Southwest surveys charging for checked bags

As reported by Bloomberg, within the past week, Southwest has started surveying customers about the possibility of charging for checked bags. Many scenarios were presented, including the carrier’s cheapest Wanna Get Away fares only including free carry-ons, Wanna Get Away Plus fares including one free checked bag, etc.

This was only part of a larger survey, which also included questions about status benefits, travel habits, and more. The airline has confirmed that it’s conducting this survey, though emphasized that it’s only doing its due diligence to track customer sentiments:

“There’s no work currently underway to change our industry-leading policy of two free checked bags, but it’s important for us to know what our customers value most. We’ll continue our efforts to track stakeholder sentiment on many aspects of our business model to ensure we remain competitive and current on customer preferences.”

Hot take: Southwest should charge for checked bags

I’m sure a lot of people will disagree with me on this, but I’ll make my case regardless — I think Southwest should charge for checked bags, at least for its lowest Wanna Get Away fares. I’m coming at this from the angle that I think this would maximize Southwest’s profitability.

Now, of course if you ask consumers if they want free checked bags or not, they’ll say yes. I mean, who doesn’t want something for “free?” But given the current dynamics of the industry, how people shop for flights, and how low margins are in the airline industry, I think starting to start for checked bags is the logical direction to take.

As Southwest’s CEO explained, free checked bags is the top reason that passengers book Southwest, after schedule and fare. I agree that of course the top reasons people book Southwest are because of the schedule and fare, as the airline has a huge route network. On top of that, Southwest is operationally reliable, and people typically like flying with the airline. So unlike some ultra low cost carriers, not many people “book away” from Southwest.

Of course those who regularly check bags also like the free checked bag aspect of Southwest, but that’s not to say that the policy makes sense.

The way I view it, there are countless reasons that Southwest should charge for checked bags. Among other things:

• Checked bag fees are a huge source of revenue — in 2023, US airlines generated $7.1 billion in checked bag fees, and Southwest would probably generate more in bag fees than any other airline, given how many passengers it carries
• With Southwest fares now appearing on more airfare aggregator sites, it’s important for Southwest to have more competitive pricing, which the airline historically hasn’t had (Southwest has been more about overall value than having the lowest price)
• Free checked bags could be added as a benefit on co-branded Southwest cards, which could considerably increase Southwest’s revenue from its loyalty program, and make these cards more compelling
• By just not including a free checked bag on the lowest fare, Southwest would create an incentive to buy-up to the next higher fare, which is a way other airlines have done a great job increasing revenue (though Southwest’s lowest fare wouldn’t be as punitive as basic economy on other airlines)
• Even if Southwest eliminated free checked bags on its cheapest fares, it would still have a more compelling cheaper fare than any other US airlines, so it’s not like consumers have another airline they can go to for free checked bags
• The reality is that there’s no such thing as a “free” checked bag, and those not checking bags are subsidizing those who are checking bags

I get that the default is to resist change, and that we’d all prefer that airlines would include more for less. But personally I’d be willing to bet that charging for checked bags, at least on Wanna Get Away fares, would contribute to improved financial performance for Southwest.

I think the added bag fee revenue, plus people potentially booking more expensive fares, would outweigh any lost business. Of course there will be (endless) examples of people saying “well I’d stop flying Southwest.” And while that’s totally valid, let’s be honest about how consumer behavior actually works. Booking Southwest would still be compelling for most consumers.

Bottom line

Southwest is in the process of making all kinds of changes. The airline is introducing extra legroom economy seating, will add assigned seating, and more. Executives at the airline have insisted that free checked bags on all fares are here to stay, though they’re also now surveying the concept of charging for checked bags.

Personally I think charging for checked bags is the right move in terms of maximizing profitability. I think the airline has a lot more to gain by charging for checked bags than it has to lose, especially at a time when the carrier is completely changing its customer experience anyway.

What’s your take — would eliminating free checked bags hurt or help Southwest’s bottom line?