The tax code encourages airlines to charge separately for checked bags, and Southwest Airlines was easily leaving $75 million in tax savings on the table each year by refusing to do so. //
The airline’s CEO Bob Jordan has essentially capitulated to activist investor Elliott in order to save his job, but at the expense of the airline’s culture and product differentiation. These changes won’t make Southwest Airlines better. Southwest had problems – Elliott and everyone else in the world observing them were not wrong – but there are no solutions to bring Southwest back to its earlier growth days because the model has simply run its course.
They have maxed out the ability to grow with a single fleet type, distributing tickets through their own channels, going it alone with a simplified product. So any future will be a lower growth, lower stock multiple, less valuable one. But that doesn’t have to mean doubling down on the race to the bottom, which is why it’s sad to see today’s change. //
Ultimately what this underscores is that there is no returning to the differentiated airline business model that gave Southwest significantly higher earnings multiples, catapulting their stock beyond peers, and generating decades of consistent profits.
Nobody had solutions, so they gave up and did what everyone else does which is what company executives do to protect their jobs. They stopped sticking their necks out, because they might get chopped off. Southwest is now just like everyone else, but a bit less (they don’t even plan to sell blocked middle seats, let alone first class; they have less valuable miles; they don’t have lounges; their wifi lags the industry). A moment of silence for this once great company. //
In the meantime, as checked bag fees roll out to tickets purchased May 28 onward, over the next few months we’ll begin to see everyone trying to carry all their bags on board. That’ll mean more gate checking of bags, which has meant Southwest needed to retrofit gate equipment. This will slow down boarding and delay flights. Good luck out there to Southwest customers!
