Southwest Airlines Introduces Checked Bag Fees Starting at $35

Southwest Airlines is ending its "two bags fly free" policy and will charge $35 for one checked bag and $45 for a second checked bag starting May 28. The change applies to tickets booked on or after the date, but those who purchased tickets before will still be subject to the old policy. Members of Southwest's top-tier loyalty program will still receive two free checked bags.

Southwest Airlines (LUV) is making a significant change to its baggage policy, effective May 28. The airline will discontinue its long-standing "Two Bags Fly Free" policy, instead charging $35 for the first checked bag and $45 for the second. This policy shift aims to boost revenue and reduce operational costs [1].

The new policy will apply to tickets booked on or after May 28. Passengers who purchased tickets prior to this date will still enjoy the old policy. However, top-tier loyalty members will continue to receive two free checked bags, aligning with Southwest's top-tier loyalty program benefits [2].

Wall Street analysts have mixed reactions to this policy change. The average one-year price target for Southwest Airlines is $28.63, with forecasts ranging from $19.00 to $40.00, indicating an average downside of 7.50% from the current trading price of $30.95 [1]. The brokerage consensus rates the stock at an average of 3.1, indicating a "Hold" recommendation [1].

GuruFocus estimates the GF Value for Southwest Airlines at $37.23 within a year, suggesting a potential upside of 20.29% from the current price of $30.95 [1]. This estimation is derived from historical trading multiples, past business growth, and future business performance forecasts.

Southwest Airlines has been under pressure to improve profitability, following a $1.9 billion stake taken by activist investor Elliott Investment Management last year. The airline has also announced plans to ditch its open-seat policy and retrofit its planes with extra legroom seats for an additional charge [2].

Despite the new baggage fees, Southwest's "bags fly free" policy was a key differentiator from competitors. The airline collected $83 million in baggage fees in 2024, but this is a fraction of the fees collected by other airlines, such as American ($1.5 billion) and United ($1.3 billion) [2].

The impact of this policy change on Southwest's bottom line remains uncertain. Some experts suggest that the airline could lose market share due to the policy change, while others believe that the revenue generated from baggage fees could offset this loss. However, the long-term effects of this policy change are yet to be determined [3].

References:
[1] https://www.gurufocus.com/news/2888143/southwest-airlines-luv-ends-free-bag-policy-to-boost-revenue
[2] https://www.cnn.com/2025/05/27/travel/southwest-airlines-baggage-fee-price
[3] https://nypost.com/2025/05/27/lifestyle/southwest-airlines-ends-bags-fly-free-policy/