Why Is Southwest Airlines Ending Free Checked Bags?

For over five decades, Southwest Airlines has built its brand around customer-friendly policies, most notably its long-standing tradition of allowing passengers to check two bags for free. However, on March 11, 2025, Southwest Airlines announced a major shift in this policy, stating that it will begin charging for checked bags for most passengers on flights booked on or after May 28, 2025. This decision has generated significant discussion among travelers, industry analysts, and investors alike.

This blog will explore the rationale behind this change, the financial implications, the impact on customers, and how this move positions Southwest Airlines in an evolving airline industry landscape.

The Rationale Behind Southwest Airlines’ Policy Change

Revenue Growth and Profitability

One of the most cited reasons for this policy change is the airline’s need to increase revenue and profitability. According to industry analysts, Southwest has been leaving money on the table by maintaining its free checked bag policy while competitors have been charging for checked luggage for years.

In a financial estimate from September 2024, Southwest projected that implementing bag fees could generate approximately $1.5 billion in additional revenue annually. However, the airline also acknowledged that this move could result in customer attrition, leading to an estimated $1.8 billion in lost business. This creates a projected net loss of $0.3 billion in the short term, but investors seem to believe that the long-term financial benefits outweigh the initial losses. This confidence was reflected in Southwest’s stock rising over 9% on the day of the announcement.

Shareholder and Investor Pressure

Southwest has been under growing pressure from shareholders to improve profitability. Elliott Investment Management, a prominent activist investor, has been pushing for major structural changes within the airline. This includes finding ways to boost revenue while aligning more closely with industry standards. Since competitors have successfully monetized baggage fees, Southwest is now following suit as part of its broader financial strategy to attract new investor confidence and improve profitability.

Competitive Positioning and Fare Restructuring

Southwest’s move brings it in line with other major U.S. carriers that charge for checked bags. This shift could allow the airline to compete more effectively on base fares, appealing to cost-conscious travelers while compensating for lower initial ticket prices by monetizing add-ons such as baggage fees. Additionally, the company is expanding its presence on online travel agencies like Expedia, which could further impact fare structuring and revenue strategies.

Breakdown of the New Checked Baggage Policy

Who Still Gets Free Checked Bags?

Despite the major shift, some Southwest passengers will still be eligible for free checked bags. The new policy introduces a tiered system that rewards loyalty and premium fare passengers:

Rapid Rewards A-List Preferred Members and Business Select Fare Passengers – Will still receive two free checked bags.
A-List Members and Select Customers (including co-brand credit card holders) – Will receive one free checked bag.
All Other Passengers – Will have to pay for their first and second checked bags. The exact fee amounts have not been disclosed as of yet.

When Does the Change Take Effect?

The policy will apply to flights booked on or after May 28, 2025. This means that any tickets purchased before this date will still include the previous free bag policy, regardless of the travel date.

Potential Impact on Southwest’s Customer Base

Customer Loyalty and Brand Perception

For years, Southwest has heavily marketed its “bags fly free” policy as a competitive advantage over other airlines. This branding has been instrumental in attracting price-sensitive travelers who prefer transparent pricing without additional fees. By eliminating free checked bags for most passengers, Southwest risks alienating long-time loyal customers who may now compare overall travel costs with competitors.

Travel industry expert Henry Harteveldt has expressed concerns that this move could erode brand loyalty and drive customers to other airlines that offer similar fare structures but with additional perks, such as seat selection or premium economy options.

Effect on Leisure and Business Travelers

Leisure Travelers – This demographic, particularly families and budget-conscious travelers, may reconsider their airline choices if Southwest no longer provides a significant cost advantage.
Frequent Flyers and Business Travelers – Many in this category may not feel the impact as much, as their loyalty status or fare class may still provide complimentary baggage benefits. However, businesses with employees who fly Southwest regularly may reassess their corporate travel policies in response to these changes.

Financial Implications and Investor Confidence

Despite the potential backlash from customers, the financial markets responded positively to the announcement. The stock market reaction, with a 9% surge in Southwest’s share price on March 11, 2025, indicates investor confidence in the long-term profitability of this move.

While Southwest projects short-term revenue loss from customer attrition, the airline likely expects to offset this through increased baggage revenue and reduced operational costs associated with handling fewer checked bags. If executed correctly, this shift could lead to improved margins and financial performance in the years to come.

Industry Context: How Southwest Compares to Competitors

Southwest Airlines was one of the last major U.S. carriers to maintain a free checked baggage policy. Here’s how its new policy aligns with competitors:

Airline	Checked Bag Fees
American Airlines	First bag: $35+
Delta Air Lines	First bag: $35+
United Airlines	First bag: $35+
JetBlue Airways	First bag: $35+
Southwest Airlines (Pre-May 2025)	First and second bag free
Southwest Airlines (Post-May 2025)	Fee applies to most passengers

By joining the industry standard, Southwest may lose its unique brand distinction but gains new revenue opportunities.

Summary Table of Key Changes

Category	Details
Effective Date	Flights booked on or after May 28, 2025
Who Gets Free Bags?	A-List Preferred, Business Select (2 bags); A-List, select customers (1 bag)
Who Pays?	All other passengers (fees TBD)
Estimated Revenue Gain	$1.5 billion annually from bag fees
Potential Cost	$1.8 billion in lost business
Stock Market Reaction	9% increase in Southwest stock on announcement day

Conclusion

Southwest Airlines’ decision to end its long-standing “bags fly free” policy marks a turning point in the airline’s history. While this move aligns with industry trends and aims to boost revenue, it carries risks in terms of customer satisfaction and brand loyalty. Frequent travelers with status or higher fare classes may see little change, but budget-conscious travelers will need to reconsider their options.

The success of this strategy will depend on how Southwest manages its transition, communicates value to customers, and offsets potential customer losses with increased revenue and operational efficiencies. As the airline industry continues to evolve, Southwest’s adaptability will be crucial in maintaining its competitive edge.

Stay tuned for further updates on Southwest Airlines’ evolving policies and their impact on the travel industry.