Southwest Airlines (LUV) Shares Soar 5.53% on New Baggage Fees

Southwest Airlines (LUV) shares surged 0.70% today, marking the second consecutive day of gains, with a total increase of 6.27% over the past two days. The stock price reached its highest level since March 2025, with an intraday gain of 1.81%.

The strategy of buying LUV shares after they reached a recent high and holding for 1 week resulted in a 1.77% loss over the past 5 years. This performance is underwhelming, especially considering the 22.01% annualized return of Capital One Finl COF over the same period. The key insight here is that compound returns can significantly impact investment growth, and LUV's performance highlights the importance of strategic planning and diversification in investing.

Southwest Airlines has recently implemented baggage fees, a significant shift from its long-standing policy of offering two free checked bags. This new policy, effective from May 28, 2025, is projected to boost the airline's earnings by approximately $430 million in 2025. The decision to charge for checked luggage is part of a broader strategy to generate new revenue streams, including the introduction of basic-economy tickets and changes to seating policies. This strategic move is expected to enhance Southwest's financial performance and attractiveness to investors.

Following the announcement of the new baggage fees, Southwest Airlines' shares experienced a notable increase, rising by 5.53%. This surge contributed to a 22.55% increase in the stock price over the past month. The positive market reaction reflects investor confidence in the airline's strategic initiatives aimed at improving profitability. Additionally, Jefferies upgraded Southwest Airlines' stock from underperform to hold on May 27, 2025, further validating the anticipated positive impact of these changes on the company's financial outlook.