Southwest’s bag fees and other changes could backfire, Fitch warns

Southwest Airways‘ new insurance policies equivalent to charging for checked baggage for the primary time could backfire, Fitch Scores mentioned Thursday.

Southwest is reversing its decades-old two “baggage fly free” coverage for checked baggage in Might, although there are exceptions for vacationers with a Southwest bank card, elite frequent flyer standing or who purchase the best courses of tickets.

Additionally it is launching assigned seating and a no-frills fundamental financial system fare and mentioned flight credit will expire.

Fitch issued a detrimental scores outlook for the corporate, lengthy identified for its robust stability sheet, as a result of “Southwest might shift to a much less conservative capital allocation and monetary coverage, whereas ongoing strategic changes have the potential to affect its aggressive place relative to community carriers.

“Objects geared toward bettering profitability such because the introduction of bag fees and expiring flight credit threat eroding Southwest’s aggressive strengths relative to friends,” Fitch mentioned.

Social media posts from Southwest, even when they have been unrelated to coverage changes, have drawn offended feedback in regards to the shifts, however market share loss, if any “is unsure,” the agency famous.

Southwest declined to touch upon Fitch’s new outlook. The airline has been beneath extra intense strain to enhance margins since activist hedge fund Elliott Funding Administration took a stake within the provider and later received 5 board seats in a settlement final yr.