Fitch Ratings issued a warning on Thursday that Southwest Airlines’ recent policy changes, including the introduction of fees for checked luggage, could have unintended negative consequences for the airline.
In May, Southwest will move away from its longstanding “two bags fly free” policy for checked baggage. However, exceptions will be made for travelers holding a Southwest credit card, those with elite frequent flyer status, or customers purchasing premium tickets.
The airline is also set to implement assigned seating and a no-frills basic economy fare, along with new rules stipulating that flight credits will have expiration dates.
Fitch has downgraded its outlook on Southwest Airlines, traditionally recognized for its strong financial position, citing concerns that the airline may be adopting a less cautious financial strategy. Moreover, ongoing strategic modifications could potentially affect its competitive standing against larger network carriers.
“The introduction of bag fees and the expiration of flight credits are measures aimed at enhancing profitability but could undermine Southwest’s competitive advantages compared to its rivals,” Fitch explained.
Recent social media engagements from Southwest, even those not directly related to these new policies, have sparked a wave of backlash from consumers. However, Fitch mentioned that any potential loss of market share remains uncertain.
Southwest Airlines chose not to comment on Fitch’s updated assessment. The airline is facing increased pressure to enhance its profit margins, particularly after activist hedge fund Elliott Investment Management acquired a stake in the company and subsequently secured five board seats following a settlement last year.
