Southwest Airlines will charge for checked bags for first time

It’s happening: Southwest Airlines will start charging passengers to ascertain bags for the primary time.

It’s a shocking reversal that shows the low-cost pioneer is willing to part with a customer perk executives have said set it other than rivals in greater than half a century of flying in hopes of accelerating revenue.

Southwest’s changes come after months of pressure from activist Elliott Investment Management. The firm took a stake within the airline last 12 months and won five board seats because it pushed for quick changes at the corporate, which held on for many years — until now — to perks like free checked bags, changeable tickets and open seating.

For tickets purchased on or after May 28, Southwest customers in all however the top-tier fare class may have to pay to ascertain bags, though there shall be exceptions. Elite frequent flyers who hold “A-List Preferred” status will still get two bags and A-List level members will get one free checked bag. Southwest bank card holders may also get one free checked bag.

“Two bags fly free” is a registered trademark on Southwest’s website. But its decision to about-face on what executives long forged as a sacrosanct passenger perk brings the most important U.S. domestic carrier consistent with its rivals, which together generated greater than $5 billion from bag fees last 12 months, in line with federal data.

Southwest didn’t say how much it plans to charge to ascertain bags nevertheless it a single bag costs $35 to ascertain on Delta, American and United.

Southwest executives have long said they didn’t plan to charge for baggage, telling Wall Street analysts that it was a serious reason why customers selected the airline.

At an investor day in September, Southwest said that it might gain between $1 billion and $1.5 billion from charging for baggage but lose $1.8 billion of market share. Southwest said its “rigorous research” found that “our ‘bags fly free’ policy generates market share gains in excess of potential lost revenue from bag fees,” the corporate said in a presentation tied to its investor day.

“After fare and schedule, bags fly free is cited because the No. 1 issue when it comes to why customers select Southwest,” CEO Bob Jordan said on an earnings call last July.

But Southwest has modified its tune.

“What’s modified is that we have come to comprehend that we want more revenue to cover our costs,” COO Andrew Watterson said in an interview with CNBC concerning the baggage fee changes. “We predict that these changes that we’re announcing today will result in less of that share shift than would have been the case otherwise.”

In September, Southwest’s then chief transformation officer, Ryan Green, told analysts that an evaluation showed Southwest would lose more cash from passengers defecting to rivals if it began charging for baggage than it might make from the fees.

“The proven fact that free bags is a key driver of selection creates the chance that customers may select the competition if we modify the policy,” he said.

Southwest said last month that it had parted ways with Green.

The airline also said Tuesday that it can launch a recent, basic economy fare, something rivals have offered for years.

Southwest, as well as, will change the way in which customers earn Rapid Rewards: Customers will earn more of the frequent flyer miles depending on how much they pay. Redemption rates will vary depending on flight demand, a dynamic pricing model competitors use.

And flight credits for tickets purchased on or after May 28 will expire in a single 12 months, or earlier, depending on the form of fare purchased.

It’s the newest in a string of massive strategy changes at Southwest as its performance has fallen behind rivals.

Last July, Southwest shocked passengers when it announced it might ditch its open seating model for assigned seats and add “premium” extra legroom options, ending many years of an single-class cabin.