Southwest has recorded better-than-expected results from its May 28 implementation of bag fees. But the carrier’s replacement of its Wanna Get Away fare bundle that same day with a basic economy fare caused a revenue hit for the three weeks that followed.
During the airline’s July 24 call to discuss its second-quarter earnings, executives said that Southwest was selling a higher-than-expected rate of paid bags per passenger, and that the rate is in the middle to high end of the U.S. industry.
As a result, said chief financial officer Tom Doxey, the airline expects to earn $350 million this year just in bag fees.
Southwest also stressed during the call that the bag-fee rollout took place without operational problems. Since not all bags fly free at Southwest any longer, planes are loaded with more carry-on bags than before. And checked-bag totals are down about a third. But incidents of gate agents asking flyers to gate-check their bags have only increased modestly, chief operating officer Andrew Watterson said.
CEO Bob Jordan also said flyers aren’t booking away to another airline.
“There’s no customer reaction to bag fees,” he said.
The story, at least for a short while, was different with basic economy.
A dip when Southwest switched to Basic
Watterson said that from May 28 through June 15, the airline lost out on bookings as flyers went to their website and saw the no-frills Basic product, which doesn’t come with bags and doesn’t allow changes without a fare upgrade. Wanna Get Away had come with two free bags, no change fees and other perks not matched by the Basic fare.
As a result, the airline took a hit of half a percentage point in the second quarter in its revenue per available seat mile and expects a further hit of one percentage point this quarter.
However, Doxey said, those third-quarter impacts are for flights purchased but not yet flown. The booking losses caused by the Basic fare came to an end mid-June and are not an ongoing problem, he said.
Overall, Jordan expressed confidence with Southwest’s ongoing commercial transformation, which takes its next big leap on July 29 when the carrier opens the books on assigned seats and extra-legroom seats for flights beginning Jan. 27.
Jordan said Southwest was on track to achieve its 2025 goal of $1.8 billion in incremental earnings before interest and taxes (EBIT) due to new initiatives and cost-saving measures.
Southwest’s Q2 results, by the numbers
For the second quarter, Southwest reported net income of $213 million, down from $367 million during the second quarter of 2024.
The airline reported operating revenue of $7.2 billion, down 1.5% percent and $50 million below analyst expectations, according to the investment website Seeking Alpha. Operating expenses were $7 billion, up 0.9% from 2024.
Southwest stock was down nearly 12% in late afternoon trading.
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