In one fell swoop yesterday, Southwest killed off nearly 60 years of loyalty, company culture, and goodwill.
Herb Kelleher co-founded the airline and was CEO from 1981-2001 and chairman until 2008. He created much of Southwest’s unique culture, including the refusal to layoff a single employee. He cared deeply and spoke out often about the airline’s culture and values and is surely rolling in his grave over the Southwest changes.
Last September, Southwest CEO Bob Jordan bowed to pressure from Elliott Investment Management in agreeing to remove open seating and selling extra legroom seats.
However, he stressed that the airline would not give up on free bags, flexible tickets, and other customer-friendly perks that made Southwest unique.
He said that getting rid of free bags on the lowest fares would add $1.5 billion of value while destroying $1.8 billion market share:
He cited free checked bags and flexible changes as the top 2 differentiators for Southwest:
He cited research to back up those assertions:
And said that policies like free bags, no cancel or change fees, free same-day standby, and non-expiring credits build enduring loyalty:
But then, in October, Elliott took over the board, and last month, the airline laid off employees for the first time in its history.
Point earnings were reduced by 67% without warning. So much for its highly toted “transfarency.”
And as of 5/28, everything that made Southwest special will be gone. Wanna Get Away will be rebranded as basic economy, with no free bags, no free seat assignments, no changes allowed, and cancellations for non-transferrable credit that will expire just 6 months from the original booking date. Redemptions will be dynamic instead of offering a fixed value.
Even full fare Anytime tickets won’t get free bags and cancellations will give a credit that will expire 12 months from the original booking date instead of non-expiring credit.
Southwest didn’t have to go this far. It didn’t have to make a 180 and become just like every other airline. It’s mind-boggling that there’s no middle ground here.
CEO Bob Jordan, who already looks like a charlatan for his presentation from last September, has doubled down on gaslighting us. He said yesterday that these were changes Southwest employees were asking for, because they didn’t want to deal with twice as many checked bags as other airlines.
Really now?
Who was asking for it? The below-the-wing employees? The ones who are now going to face further layoffs, as they aren’t needed to load as much luggage?
The ticketing agents, who now have to enforce Southwest’s new nickel and dime policies?
The gate agents? The ones who are now going to have to police the number and size of carry-ons, as people will be bringing their bags onboard for free instead of checking them under for free. And the ones that will have to figure out how to board a plane under even more aggressive turnaround times than before, all while losing the time advantage of open seat assignments and low carry-on usage.
The flight attendants? The ones who will now have to help load more bags in the overheads and get passengers seated quickly despite having more carry-ons? And the ones who will have to tell passengers there’s no more space for their bags and tell passengers to put bags under the seat?
Give me a break. Nobody asked for this other than Elliott. And turning your employees into enforcers will kill off any last semblance of what made Southwest unique and friendly.
Bob Jordan said that Southwest has the best hospitality in the business and that it’s not going to change. Do you believe him?
Or will you prove right what he said in September, that killing off what makes Southwest unique will destroy more value than it creates?
What makes Southwest unique at this point? Yes, it’s the largest domestic carrier, so it can get away with a lot. But it offers no first class cabin, when even JetBlue and Frontier are adding those. It offers no hot or special meal service. It offers no lounge network. It has weak WiFi. Seat pitch/legroom is being reduced. And it offers no long-haul flights or even a global alliance for mileage redemptions. Southwest planes don’t have seat-back entertainment and most don’t even have power ports.
On what basis can it compete with now other than price, but with fixed costs that are higher than other low-cost carriers like Frontier and Spirit.
Many people automatically booked Southwest, even if the fare was significantly higher than other options, specifically because of brand loyalty and customer-friendly policies. Without that differentiator, those days are now likely gone.
What happens next will be studied in business schools for years to come. Will customers book on other airlines and try to force Southwest to retreat? Or will they accept the changes and allow Elliott Investment Management to claim its winnings?
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48 Comments On "Dan’s Rant: Southwest’s CEO Said That Charging For Bags Would Cost Them More Than It Would Make, Will You Prove Him Right?"
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What makes southwest unique is its route network. They are one of the only true point to point networks around as opposed to hub and spoke (breeze is trying point to point, but are tiny).
Ultimately, they might kill off point to point as it is more costly to run. So then, they are just spirit plus.
Actually, hub and spoke is the more costly model.
Frontier is another point-to-point airline.
How is that possible? In business classes, they always used the example of hub-and-spoke vs point-to-point, with hub-and-spoke being cheaper due to the economies of scale, but point-to-point offering a more customer-friendly option. For example, I may not have enough interest to operate a Vero Beach to Buffalo flight, but there is enough for a Vero Beach to Newark and a separate Newark to Buffalo.
This x1000. Oddly they do operate hub and spoke in cities where they can’t compete (NYC is the biggest example of that where they fly to their hubs).
If people are smart they will start a boycott of this airline, it’s not enough to just lose your loyalty – this should be like a Bud light level event boycott where the industry is sent a message because if that happens someone will rise from ashes and remake this business model.
If not, then it will die and deservedly so as the power is in the hands of the consumer to make their wishes known.
I hope people vote with their wallet. Even if it costs them a few bucks more. I know I will be doing that.
Exactly right!
I have held a companion pass for over 15 years all earned via flying, over 100 flights per year on Southwest. I did a status match with United yesterday got approved for gold and plan on switching most if not all my flying to United.
Is the companion pass going away also? I don’t fly as much as you but have has a CP for 30 plus years
The only thing left is the companion pass. If they kill that Iām done. Itās the only airline that makes it sort of easy to earn the pass for free and has unlimited usage.
The only thing keeping me with SW is its point-to-point routes from BWI. Legacy carriers fly from BWI to their hubs, but not to much else.
I have many options from my airport but picked SWA because of it’s flexibilty like many have said (no bags, easy to change, etc). I rarely had non-stop routes to my frequent destinations and most of the time, dealt with layovers just because of staying “loyal” and the flexibility. No longer. Whether it’s business or leisure, I’ll stick to American and Delta. They offer a better route selection for the places I’d visit and I already get a free bag being a cardholder, so I don’t need/want to get another credit card for SWA to save on this.
Shame on them. I supported the assigned seats largely because of the abuse during the boarding process and family boarding. But this… no… this is just not fair.
Sadly, I have a number of frequent flier miles built up and some flight credits, but once those are used up, I’m done. How you can go from “Nothing will change Q3/4 last year” to a total turnaround is just a slap in the consumer. It is no longer unique — it would rarely be cheaper but figuring in bags etc., it was a nice perk. Now, I’ll fly with whomever gives the best deal moving forward.
SHAME ON YOU SWA!
I’m almost holding my breath for the “friends don’t let friends fly Southwest” to come along.
We just got our Companion Pass (thanks to Dan’s Deals) for the rest of 2025 and all of 2026, but once that expires, we will definitely be looking at SW as any other airline and it will have to compete for our business the same way AA, UA, Delta and others do.
I always flew southwest, often even when there was a stop, as opposed to a nonstop on another airline. Never again though. Itās very sad. I expect the friendliness of the crew to remain residually for another bit, just by default, but thatās about it. No reason to ever choose them over another now. (I, for one, loved open seating too, but to each their own). I expect companion pass to go away too. Sad day.
Spirit thought they were making money by nickeling and diming, ultimately enough people said āNo moreā. And so now they are bankrupt. Southwest decides to copy them? How foolish.
The real money was in the bag fees. There was no need to impose funds expiration or reduce the flexibility of WGA fares by downgrading them to Basic. Those changes will sting customers and cause them to vote with their feet. Bag fees alone would have been much easier to accept. I strongly recommend that Southwest drop all these changes except bag fees.
Southwest will gain revenue only until competitors invade Southwest’s captive routes, particularly intra-California where Southwest has been gouging us in recent months. But by then, Elliott will be long gone. Elliott gives capitalism a bad name.
Dan, as someone who works in the credit card industry I can empathize with loyal customers but can also see the other side of the coin. Airlines make waaaay more through their credit card programs (and by extension their MOST loyal customers) than they do on passsenger revenues. By eliminating perks like open seating and more importantly, free bags, you force āloyal customersā who donāt have a card to now get one so you can retain those perks while also driving revenue to the airline. Iām shocked they didnāt institute this change longer ago but it really does make sense.
No. There are other ways to drive credit card uptake.
Awarding extra legroom coupons, giving everyone 1 free bag along and cardholders a 2nd free bag or a free heavy bag, etc.
They didn’t have to kill their entire brand to get higher card uptake rates.
Clearly they felt they did. Iām sure they have plenty research supporting this decision as wellā¦
As you can see from the slides in this post, they did the research and came up with the opposite result.
What changed from Elliott buying up stock and taking over the board.
So you think they purposely made a decision with the intention of losing money?
They clearly have other data points that indicate it will be a profitable decision, which likely include savings that you mention in the post yourself (i.e. lower headcount).
No, I think Elliott hijacked the board and forced changes that might be good in the short-term, but will not work out that way in the long-term.
But it won’t matter to Elliott, because they will liquidate their position long before then.
I’m an A List passenger, but going forward I will be thinking about switching. I fly myself which won’t change too much as I still get a free bag, but I often fly my boys back and forth to yeshiva or camp. If I can’t send them with free luggage, then there doesn’t seem like much point staying with Southwest. I may just switch to Delta or United.
Get your boys a United Quest card and they’ll get unlimited 2 free checked bags on all flights (including Basic Economy) for $125 per year.
If they live in a place with usable united routes…..
Your analysis is correct. In one feel swoop Southwest took away all of the reasons its customers have been loyal. Now they’re just like every other airline. After so many years we’re going to rethink both our credit card and use of Southwest and shop around more!
Just like JCPennys. Southwest will loose a Majority of its customers. What’s my best option now. I am taking suggestions!
Unless you fly a lot to a lot of random places, your best bet is probably to stick with whatever airline dominates your local airport. E.g. United for Newark, Delta for Atlanta, etc.
Their route network certainly keeps them in the game even if they kill off everything that set them apart. I honestly never liked the lack of assigned seat always made me so anxious š except when you got away w sneaking that car seat/Duna on for your lap infant that now got a seat on a not full flight. Bags are a tough blow. All they gotta do now is raise their prices 15% and bye bye. At least Iāll never have to cheshbon going to Midway ever again!
When I think of Southwest, free bags is the first thing that comes to mind.
Itās the feeling of not getting nickel and dimed.
Once they get rid of that, they are just another regular airline.
Dan, I always enjoy your writing and analysis! …just unfortunately don’t love what there was to write about this time… It’s so mind blowing that they just shot their entire customer base and business model.
We loved Southwest for the bags and open seating (amazing with family boarding). They were often not even the cheapest option, but the ease of travel was so nice.
I will say we recently flew Spirit “Go Big “(includes 1 bag, 1 carry on, nice wide seat, extra legroom, free quality snacks, Wifi) for the same price as a Southwest ticket and it was surprisingly extremely pleasant! (aside from an air of tension coming from the flight attendants and honestly felt a little guilty sitting in comfort while watching everyone else cram in back…)
āhonestly felt a little guilty sitting in comfort while watching everyone else cram in backā¦)ā
Isnāt that anytime you fly s premium cabin?
Or maybe extra on spirit?
It’s the only time I’ve flown in a premium cabin .
The emoji didn’t make it into the comment. Didn’t mean to say that quite so sternly lool.
But feel like there’s an added aspect on spirit, where everything is so medakdek that it feels like you’re the 1% sitting there with your toddler in a big comfy chair
I flew Spirit’s Big front seat recently and felt the same way. There’s way more judging on Spirit than in first class on other airlines.
The previously announced changes were measured and made sense to try. Assigned seating, extra legroom seats, overnight flights. Now all they had to do was wait and reap the benefits. Instead they just destroyed the airline overnight with a zero chance of making the increased profits they were working on achieving. I don’t see how this works even short term to pump up the stock so Elliot can dump it. Unless they have an investment in an other airline that they want to pick up the pieces of Southwest for cheap.
I will change from WN to Dan’s favorite airline, AA!
Or you can move to CLE. š
Southwest is not the best but only the free bags which attracted me to stay with them. Now, no free bags, I will just go regular United or Delta only which I can have my Wi-Fi access, more routes and points etc. It was so painful to travel Southwest due to paid Wi-Fi when others I can use my T-Mobile.
Shame they did it now when oil prices are coming down, not the time to lose customers!!!
I can see why this made sense from a financial point of a firm, stock LUV has been in a steady decline since covid and they want to turn around financially. So they took the cut throat approachā¦
I mean basically all the major airlines have been recording massive profits from ancillary charge’s and their stocks have soared on 2024 but not the case for southwestā¦
Sounds like they are just trying to be up to par with the standards of legacy airlines, and then they will start introducing interline and ticketing with other airlines… They already started with Iceland Air https://support.southwest.com/helpcenter/s/article/southwest-interlining-partners
Though you can argue for short term gain on the balance sheet i would disagree especially with low oil prices and lots of gvmnt slashing that the legacy airlines will be able to compete price wise a lot more!! ā¦which will also be a big problem for all ulcc!!!
LUV puts???
The problem @Dan is that SOMETHING needs to be done. Their stock is down a whopping 50% over the past 4 years.
For contrast, United is up 30% over the same time frame. And if you look at united for the same time period, save the past 2 months, they are up 93%!
I don’t either think that the answer is to do a full 180 and screw all their loyal customers, but clearly there has been a problem for a very very long time and nothing else was working.
At the end of the day, it all comes down to $$$, so I can understand why investors feel that the airline needs to do SOMETHING. Bleeding money for years is just not a thing.
Now that “something” may not be to screw loyalty and join the race to the bottom, but clearly “LUV”, and free bags is simply not making them money.
What would you do if you were the CEO to increase their profits and turn this money-losing dumpster fire around?
— Personally, I think that in any business you have to either outprice everyone in the rat race, or make a product so personal, so emotionally attractive, thoughtful, with a story, connection to the customer, warm/fuzzy ads, go above and beyond expectations every time, personal touches, every perk in the book, sear permanent positive memories in the customer every time, establish a real BRAND, have people WANT to talk about you and their experience with you to their friends, etc. etc. etc. –
THEN you can charge what you feel like and customers won’t need to use Priceline to find the cheapest way from point A-B. They won’t even check.
Issue is… Southwest was neither… They have always been a boring, unpersonal, unloving airline, with old/dirty & uncomfortable planes, no lounges, no 1st class or global reach and a all around cheapy feel. Oh, and they happened to offer free bags and cancelations. But that’s it.
So they picked neither, and got stuck in the middle – profitless and unLUVed
Southwest was not bleeding money, they are profitable and have a healthy balance sheet.
Sure, changes were needed to do better. Adding extra legroom and assigned seat fees were already planned and would help with that.
They also just finally added redeyes to their schedule.
But copy/pasting every other airline, without having the network of the big guys or the low costs of the ULCCs, is a very risky move. Especially with an airline that has the culture and loyalty of Southwest.
They didn’t need to kill the soul of the airline to fix it. They will regret this in the long term.
Not my experience at all. Most of my flying is to/from bwi,fll,mdw,ord so I never had much reason to choose anyone else. But SWA was usually, friendlier, funnier and perfectly pleasant especially when going with family. Lounges are overrated but that is another story. NO free bags was not the whole story; they were affordable, convenient and supremely flexible especially with miles but even paying cash.
Most of the SWA flights are to less convenient airports; why would I shlep there without the free bags?
Ok, their BALANCE SHEET may have not been bleeding money, but they made less than half a billion profit on a 28 billion revenue 2 years in a row.
Their stock (and investors) have been bleeding money big time (and that’s WITH them being currently overpriced with a P/E ratio of 42)
Again, I totally agree that what they did will only make things worse, but they had to do something drastic soon…
The answer to standing in a freezing cold shower isn’t to turn it all the way to boiling and wait and see what happens.
They didn’t even give the assigned seat sales and redeyes a chance to make money before destroying everything they stood for.
Amtrak tweeted out saying “guess we’re the only ones doing free baggage now, each passenger may bring 1 personal + 2 carry-ons items for free”
Shame amtrak is too expensive