Southwest Airlines has announced a series of significant changes aimed at enhancing operational efficiency and financial performance, including the end of its long-standing free checked bags policy and a substantial workforce reduction.
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End of Free Checked Bags Policy
For nearly 50 years, Southwest Airlines distinguished itself by allowing passengers to check two bags free of charge, a policy that began with the airline’s inception and continued even as competitors introduced baggage fees. This “Bags Fly Free” policy became a cornerstone of Southwest’s brand identity and a key selling point for travelers seeking value.
However, starting May 28, 2025, this policy will change. Under the new guidelines:
- Rapid Rewards A-List Preferred Members and Business Select fare customers will continue to receive two free checked bags.
- A-List Members will be entitled to one free checked bag.
- Rapid Rewards Credit Cardholders will receive credit for one checked bag.
- All other passengers will be charged for their first and second checked bags, with standard weight and size limitations still applying.
This shift aligns Southwest with other major U.S. carriers that have long charged for checked luggage and is expected to generate additional revenue amid rising operational costs.
Layoffs
In addition to policy changes affecting customers, Southwest is implementing a layoff impacting approximately 1,750 corporate positions, including leadership roles. This represents about 15% of the company’s corporate workforce, with 11 senior leadership roles at the vice president level and above also being eliminated. The layoffs are expected to be largely completed by the end of the second quarter of 2025.
Southwest Airlines President, CEO, and Vice Chairman Bob Jordan described the decision as unprecedented in the company’s 53-year history, emphasizing the need to streamline operations and improve agility. He acknowledged the difficulty of implementing these layoffs and expressed appreciation for the employees impacted, recognizing their contributions to the airline.
The company estimates that the workforce reduction will generate approximately $210 million in cost savings for 2025 and around $300 million in full-year savings for 2026. However, Southwest expects to incur a one-time charge of $60 million to $80 million in the first quarter of 2025, primarily due to severance payments and post-employment benefits.
Additional Changes
Southwest is also making other adjustments as part of its broader strategy:
- Rapid Rewards Program Adjustments: The airline has modified its loyalty program, increasing points earned on Business Select fares while reducing points for Wanna Get Away and Wanna Get Away Plus fares. Variable redemption rates based on demand will also be introduced.
- Introduction of Basic Fare: Replacing Wanna Get Away, Basic fare will be launched for the lowest-priced tickets purchased on or after May 28, 2025, offering fewer benefits compared to other fare types.
- Expansion of Distribution Channels: Southwest flights are now available through online travel agency Expedia, aiming to reach a broader customer base.
- Operational Enhancements: The airline has introduced assigned seating and extra legroom options, established a partnership with Icelandair, and begun offering overnight redeye flights.
While Southwest has framed these adjustments as part of a broader effort to meet evolving customer needs, they also align with ongoing efforts to improve profitability and respond to shareholder expectations. The airline has stated that it will continue to evaluate additional cost-saving measures and strategic initiatives as the year progresses
Analysis
There’s a lot to unpack here, so let’s break down the three major changes happening at Southwest Airlines:
- End of free checked bags
- Layoffs
- Additional strategic changes
End of Free Bags Thoughts
Without a doubt, the most consequential and impactful change is the end of Southwest’s long-standing two free checked bags policy for most travelers. For decades, this perk set the airline apart, and now that it’s being taken away, it stings. There have been unconfirmed reports that Southwest’s internal data indicated it could lose a significant number of customers due to this change. While the move will undoubtedly increase revenue, the real question is: at what cost?
Layoffs Thoughts
Southwest has long avoided layoffs, something that set it apart in the airline industry. Unfortunately, that streak has come to an end, with the airline cutting a substantial number of positions. Layoffs have become increasingly common across the industry, but it’s disappointing to see Southwest, a company that historically prided itself on job security, take this step.
Additional Changes Thoughts
Southwest has traditionally kept its flights off major online travel agencies, making direct price comparisons more difficult. However, that is changing with a new agreement to list flights on Expedia. This could be a positive move, as it will allow customers to compare prices more easily.
Another notable change is Southwest’s new codeshare agreement with Icelandair. Several years ago, the airline attempted a similar partnership with WestJet, but it didn’t last long. This new agreement with Icelandair could provide Southwest with additional international connections while offering customers more travel options.
What’s Driving These Changes?
Southwest has a long history of being a different kind of airline, challenging the industry status quo. So why are these changes happening now? A major factor appears to be pressure from Elliott Management, an activist investor group that has been pushing for operational and financial changes.
Despite these shifts, I believe Southwest will remain strong. As the largest domestic airline in the U.S., it has a unique route network with limited alternatives. The new Expedia listing and codeshare partnerships will likely help maintain its competitive edge.
I hope the airline’s future remains bright. I recently flew both Southwest and American in first class, and the most memorable part of that trip wasn’t the premium cabin—it was the Southwest flights. The difference was the crew and employees who created a lighthearted and friend like environment.
It’s unfortunate to see Southwest becoming more like every other U.S. airline.
