For decades, Southwest Airlines (LUV) has earned a loyal customer base with its generous baggage policy.
While other airlines have recently been following each other in a domino effect of raising baggage prices, Southwest allows every passenger regardless of ticket fare to check two full-size suitcases of up to 50 pounds each on every flight.
“Each Customer is allowed two free checked bags,” the airline specifies on its website.
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But amid several poor financial quarters (the airline recently completely cut service out of four airports), Southwest has been looking for ways to turn its finances around. On June 10, investment company Elliott Management announced that it has acquired $1.9 billion of Southwest shares (news that sent the Dallas-based airline’s stock soaring by nearly 10%).
New shareholder has big (and not necessarily good) plans for Southwest
In a letter announcing its commitment to the airline, the hedge fund started by Paul Singer and that is now among Southwest’s largest stakeholders expressed the need to replace chief executive Bob Jordan and board chairman Gary Kelly in order for the board to “reconstitute itself and upgrade the company’s leadership.”
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As first reported by Forbes, the letter shared internally to investors also took aim at Southwest’s “bags fly free” policy as a source of missed revenue of up to $50 per passenger for the airline — the first warning sign that this perk will eventually be pulled away.
A recent report from IdeaWorks shows that the 20 biggest airlines in the world generated over $33 billion in profit from checked baggage alone (this makes up 4.1% of total airline revenue.) While seemingly a small number it can make up for holes caused in falling revenue.
In January, Southwest reported a quarterly net loss of $219 million or $0.37 per diluted share. Since the start of 2024, JetBlue (JBLU) , Alaska Airlines (ALK) and American Airlines (AAL) all raised their baggage fees to within the $40 range for the first time since 2018. At $45 for the first bag checked online and $50-$60 if the traveler waits until the airport, JetBlue now has some of the steepest checked bag fees in the industry.
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Major new shareholder scolds ‘leadership’s stubborn unwillingness to evolve’
“Poor execution and leadership's stubborn unwillingness to evolve the Company's strategy have led to deeply disappointing results for shareholders, employees and customers alike," the letter reads while also adding that the “mandate from the board” has remained to “keep doing things the way they have always been done” despite falling revenues and a 2022 holiday software breakdown that caused thousands of canceled flights and significant reputational damage to the airline. Elliott Management said that it could push Southwest stock, which is currently at $28.41, by more than 77% to $49 a share.
In response, a Southwest spokesperson said that it is “confident” that the current leadership can continue to “execute” and provide “long-term value” for investors.
“The Southwest Board of Directors is confident in our CEO and management's ability to execute against the company's strategic plan to drive long-term value for all shareholders, safely and reliably serve our customers, and deliver on our commitments to all of our stakeholders," the company statement communicated by the Southwest spokesperson reads.
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