Industry experts say Southwest Airlines could lose some of their leisure travelers to rivals.
This, along with open seats, has helped differentiate themselves from their competitors for over 50 years, appealing to a wide range of budget-conscious travelers.
Southwest announced this week that it will only offer free check bags to certain loyal and business-class customers starting May 28th.
“The idea of adding bag fees may work well in spreadsheets, but Southwest risks losing its share in the leisure travel market,” Peter McNally, global head of sector analyst at Third Bridge, told Fox Business.
The change comes months after the company warned that it would begin offering assigned seats and premium seat options on all flights.
Both moves highlight how the company's financial challenges have forced it to reassess its approach.
Southwest was also one of several major US airlines this week, returning quarterly financial expectations as the industry competes for softer demand from economic uncertainty and other factors.
The latest changes could potentially lead Southwest to lose out on long-distance flight competition, but not on the business as a whole.
Southwest has many short-distance flights that usually accommodate travelers who travel a day or overnight, and that are not checking their luggage. For these types of quick travel, Southwest continues to offer the most competitive fares on the market.
“A family of four who flew to Orlando in Southwest has the option of adding bag fees, like the Americans,” McNally said.
For example, the “Big 3” airlines (Delta, USA, United) have “strong loyalty programs that offer several premium options while being more competitive in the US leisure market,” McNally said.
Southwest said this week it plans to introduce new base fares for lowest-priced tickets purchased after May 28th.
“Our experts see revenue opportunities from more premium options (e.g., extra legroom), but those opportunities take time as we need to reconfigure the cabins,” McNally said, but not an instantaneous revenue increase from saying, “We're charging these bags now.” ”
However, McNally said basic economic fares are fairly standard as airlines cannot cut prices that much.
“The end of the low cost of the aviation industry has discovered a lower pricing limit. After all, Spirit went bankrupt. Costs rose during the pandemic due to the labor rate and stayed there,” he said, adding that these are contractual and will not change.
Fuel costs have been lowered over the past few years and offer some relief, but their ability to provide very low fares is still limited. McNally said.
