In a significant shift in airline policies, Southwest Airlines has announced it will begin charging for checked bags, marking the end of its long-standing free baggage policy. This move has drawn immediate attention from competitors like United and Delta, who see an opportunity to attract customers who are sensitive to price changes. The decision comes amidst pressure from investors and a broader business restructuring effort at Southwest. Industry leaders believe this change could lead to a realignment of customer preferences within the competitive US domestic market. Ancillary fees have become a crucial revenue stream for airlines, and with Southwest now aligning more closely with industry standards, the dynamics of the market are likely to shift.

The announcement that Southwest Airlines will start charging for checked bags has sent ripples through the aviation industry. On March 12, 2025, the company revealed that from May 28, only select premium members would enjoy the benefit of free checked bags. This shift away from its signature "bags fly free" policy is part of a larger overhaul aimed at addressing investor concerns and improving financial performance. United Airlines CEO Scott Kirby remarked at the JPMorgan Industrials Conference that this move was akin to "slaying the sacred cow," signaling a major departure from Southwest’s traditional business model. Kirby and his counterpart at Delta, Ed Bastian, both expressed optimism about capturing customers who previously chose Southwest for its free baggage perk. They noted that these travelers might now consider other airlines offering similar or better value propositions.

Ancillary fees have grown increasingly important for airlines, contributing significantly to their bottom line. United, for instance, reported $4.5 billion in ancillary revenues in 2024. For Southwest, carrying nearly twice as many checked bags as its competitors has been a costly endeavor. According to Bob Jordan, Southwest’s CEO, the new policy aims to boost credit card enrollments and generate additional revenue. The company has faced mounting pressure from investors, particularly Elliott Investment Management, which holds an 11% stake in Southwest. Elliott criticized the airline’s outdated strategies and called for a management overhaul. In response, Southwest has introduced several changes, including abandoning its free seating policy and implementing basic economy fares. Additionally, the company recently laid off 15% of its corporate workforce, breaking its long-standing tradition of avoiding mass layoffs.

The competitive landscape of the US domestic airline market is poised for change. With Southwest’s decision to charge for checked bags, rivals like United and Delta stand to gain from potential customer shifts. As ancillary fees become more prevalent across the industry, airlines are reevaluating their strategies to remain competitive. Southwest’s efforts to streamline operations and enhance profitability may reshape how it competes in the market. While the future remains uncertain, one thing is clear: the airline industry continues to evolve, driven by changing consumer preferences and financial pressures.