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Southwest Airlines Shifts Toward Checked Bag Fees Amid Credit Card Strategy

Southwest Airlines is set to change its longstanding policy of offering two free checked bags, a hallmark of its service, starting May 28. With this strategic pivot, the airline appears to be positioning itself to increase the appeal of its credit card offerings by linking free checked bags as a benefit for cardholders.

This move, while potentially enhancing their loyalty program revenue, raises concerns that Southwest may alienate some customers who might opt for competing airlines that continue to provide similar perks.

Historically, airlines have significantly benefitted from partnerships with credit card companies, which generate billions in revenue. With the newly implemented checked bag fees, Southwest’s target audience may shift, with expectations for a rise in credit card sign-ups, especially given the allure of free checked baggage for those holding Rapid Rewards cards and elite members.

As of 2024, Southwest’s loyalty programs contributed approximately $2.2 billion to the airline’s total operating revenue, which accounted for about 8% of its overall earnings. It holds a considerable number of unredeemed points—valued at around $4.8 billion—that further underscores the potential and profitability of its credit card initiatives.

Southwest’s recent revisions, which include imposing bag fees, further align it with broader industry trends where ancillary fees have become more commonplace. High-status passengers and Rapid Rewards credit card holders will retain the free checked bag benefit, but general passengers will now encounter additional charges.

The strategic focus on credit card offerings is an effort to stimulate further loyalty revenue as travel demand appears to decline. As the competitive landscape heats up, particularly with airlines like American, Delta, and United possessing a more extensive network and additional amenities such as premium cabins and airport lounges, Southwest could be vying for a larger share of consumers’ spending. Analysts predict that as customer preferences shift, maintaining a competitive edge through credit card benefits is crucial.

Reflecting on the landscape, Henry Harteveldt from Atmosphere Research Group noted that Southwest’s adaptations, including future enhancements to credit card perks, are crucial to foster loyalty from their customer base. He indicated, however, that the new bag fee strategy might lead to a shift in customer loyalty towards other airlines that present distinct advantages.

The competition for airline credit cards has escalated, where partnerships with financial institutions can yield significant profits—Delta Airlines, for instance, derived $7.4 billion from its association with American Express in 2024. As these airlines optimize their loyalty systems and credit card offerings, retaining customer interest becomes imperative.

As Southwest progresses towards these changes, its popular companion pass remains a unique draw, allowing travelers to bring a guest on flights for minimal additional costs. By linking sign-on bonuses to the companion pass, Southwest aims to attract new credit card members and ignite interest in their offerings.

With looming changes on the horizon, the coming months will reveal how effectively Southwest can adapt its strategy to navigate a competitive market while maintaining customer loyalty.

For more insights, visit the original article on Business Insider.

Source
finance.yahoo.com