Tag: data

When Southwest Airlines announced on May 28, 2025, that it would begin charging for checked bags — $35 for the first, $45 for the second — it marked more than a shift in pricing. It signaled the potential unraveling of a strategic advantage the airline has spent six decades building.

A Strategic Moat being abandoned

Since the beginning, Southwest championed simplicity and transparency. Its “Bags Fly Free” promise wasn’t just clever advertising; it was a core pillar of its value proposition. It differentiated Southwest in an industry known for nickel-and-diming travelers. For millions of customers, this wasn’t a minor perk — it was the reason to book Southwest.

Southwest trademarked the slogan, built memorable marketing campaigns around its quirkiness, and made it a talking point in earnings calls. In a market where competitors like American, United, Delta, JetBlue, and Frontier generated billions from baggage fees, Southwest held the line.

And it worked for Southwest:

• Southwest consistently ranked highest in customer satisfaction for low-cost carriers (J.D. Power).
• It carried more domestic passengers than any other U.S. airline in 2023.
• It had 2–3x as many checked bags per passenger compared to competitors, indicating customer reliance on this feature. That market segment (“user persona”) stuck with Southwest

The Math Behind the Move

It’s clear why Southwest made the move from a revenue standpoint:

• It flew ~137 million passengers in 2023.
• Even a conservative baggage fee adoption rate of 50% could add over $2.4 billion in annual revenue.
• Southwest made only $83 million in baggage fees in 2024 (from third+ bags and overweight charges).

Meanwhile:

• American Airlines made $1.4 billion in baggage fees in 2023.
• Delta and United were both over $1 billion.
• Southwest’s average revenue per domestic customer was ~$185 in 2023, vs ~$250–$270 for Delta and American. (Delta and American are full service carriers and have higher classes of service which Southwest just started to introduce)

But there’s a catch: Baggage fees aren’t just about incremental revenue. They’re part of the cost/benefit analysis customers perform when booking. Once Southwest adds baggage fees, it loses the simplicity advantage — and the brand goodwill that they spent years building.

Market Positioning at Risk

By copying traditional competitors, Southwest is surrendering its differentiation. It’s morphing from a low-cost, customer-friendly carrier into yet another full-cost, fee-driven perceived-to-be-unfriendly airline.

Let’s look at market share:

• Southwest had 17.5% of the U.S. domestic market in 2023.
• American: 17.4%
• Delta: 16.4%
• United: 15.5%

It’s a four-way fight for the U.S. domestic throne. Southwest stood out — not just on price, but on philosophy. Now, that moat is gone.

What Should Southwest Have Done Instead?

As a pricing strategist, here’s a smarter way to extract more value without gutting the brand:

1. Make changes step by step. There are many ways to grow average revenue per domestic customer. Introducing tiers/classes. Assigned seating leads to premium seat pricing. Do that before you risk alienating your “brand differentiation” and abandon your existing “target user base”
2. Enable tiers/classes – monetize by having the premium tiers being an average $30-$50 more per seat.
3. Enable Premium seating – monetize existing space without adding operating cost. If 20% of passengers (27M) opt-in for $20 in premium seating fees –> thats $540M in new annual revenue.
4. Take away free bags only from the lowest tier fares – Maintain free checked bags for Anytime and Business Select fares. Preserve differentiation at the most tier — keep high-value travelers loyal.
   • And Create bag bundles. Let discount fare customers pay $50 upfront to unlock free bags for their trip — a clean upsell with perceived value.
   • Gamify benefits for loyalty members. A-List members and Southwest-branded credit card holders should retain the free bag benefit, turning benefits into aspirational goals.
5. Data-driven rollout. Pilot the change in a few markets with heavy competition. Collect NPS and retention data before going national. Retain the differentiator while finding ways to grow the profits.

Final Thought

Southwest’s decision may juice short-term revenue, but at what cost? Customers now have one less reason to choose it over the rest. In the airline business, brand differentiation is a rare and valuable asset. Letting it go — without a stronger advantage to replace it — is not a strategy. It’s surrender.

The skies just got a little less friendly.

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Sources: Department of Transportation 2023/2024 statistics, SEC filings from Southwest, American, United, Delta, and Cirium ASM data.