By Callum Keown

Southwest Airlines plans to start charging for checked bags, bringing an end to its 'bags fly free' policy after 54 years.

While that's likely to disappoint consumers, it's had the opposite effect on investors -- the stock surged 9% in early trading. In comparison, Delta Air Lines fell 3.4% and United Airlines was flat.

Southwest lowered its revenue outlook for the first quarter Tuesday, along with Delta and American Airlines, citing softness in demand amid a weakening macro environment. But in a separate announcement it set out changes to boost revenue growth -- most notably ending its free bag policy.

For flights booked on or after May 28, customers will be charged for their first and second check bags, the airline said. Its reward program members can still get free checked bags.

Investors may be welcoming the change but it's not without risks. In fact, Southwest's research last year concluded that the financial impact of customers opting to fly with competitors would outweigh any increase from fees.

CEO Bob Jordan revealed in September that the airline commissioned a third-party to do a comprehensive study "to understand the financial trade-offs of keeping or changing our bags fly free policy."

The results, he said, were clear. "Our policy not only provides customer value and generates enduring loyalty, the policy also generate significant shareholder value. And there is significant customer and financial risk to eliminating or changing the policy," he told analysts.

The airline's Chief Transformation Officer Ryan Green explained the findings at its investor day in September. "The results showed too much defection in future flying even in markets where we're strong that more than offset the ancillary revenue we'd earn from bag fees."

Green will step down on April 1, the company revealed last month.

Other airlines will see it as an opportunity. Delta Air Lines President Glen Hauenstein was asked about the carrier's policy change during a presentation at the J.P. Morgan Industrials Conference Tuesday. "I think clearly there are some customers who chose them because of that, and now those customers are up for grabs.

"We'll see how that plays out over the next period of time," he added.

Write to Callum Keown at callum.keown@barrons.com

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March 11, 2025 10:49 ET (14:49 GMT)

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