Southwest: Bag Fees Beat Projections, Corp. Demand Recovering
Southwest Airlines said its implementation of its new baggage fees came with "no negative impact to the operation," and that corporate demand is recovering.
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Southwest Airlines' implementation of its new baggage fees came with "no negative impact to the operation," Southwest president and CEO Bob Jordan said during a Thursday earnings call.
"The revenue contribution from bag fees has exceeded our expectations so far," Jordan said.
The bag-fee changes were announced during the first quarter and implemented on May 28.
Southwest CFO Tom Doxey said that the carrier estimates checked-bag fees will result in more than $350 million of earnings before interest and taxes for full-year 2025, "which compares favorably to our initial estimates and has a run rate of approximately $1 billion of EBIT had it been in place for the full year."
Southwest COO Andrew Watterson also noted that "we did not see a measurable customer impact in the period between the announcement of these changes back in March and the implementation in late May." However, the day before the changes took place, "we did see a modest pull forward in bookings, and in the days following May 28, we experienced a temporary decline in bookings, primarily in basic economy," he added.
Last year, Southwest also announced it would end its open-seating policy in 2026, and earlier this week, said tickets with assigned seats would go on sale July 29, with flights to begin Jan. 27.
"I want to reiterate that our current initiatives are not the endpoint in our product strategy and evolution," Jordan said. "We are committed to evolving further to meet the needs of our current and our future customers."
Watterson said of corporate demand that in the second quarter, "May was the worst. And then June was better than May. July is better than June, and August is off to a strong start," he said. "So, a good inflection in Q2 for corporate."
Southwest also updated its 2025 aircraft delivery assumption to 47 deliveries from 38 as Boeing continues to ramp up production, Doxey said. The carrier received 17 aircraft in the second quarter. "With these incremental deliveries, we now expect to retire roughly 55 aircraft in 2025, an increase of about five from the previous estimate," he added.
Southwest Q2 Metrics
Southwest reported second-quarter passenger revenue of $6.6 billion, down 1.3 percent year over year. Total revenue was down 1.5 percent for the period to more than $7.2 billion. Net income was $213 million compared with $367 million a year prior.
Second-quarter capacity increased 1.6 percent year over year. Average fuel costs were $2.32 per gallon.
Southwest projected third-quarter capacity to be flat compared with Q3 2024. Revenue per available seat mile is projected to be down 2 percent to up 2 percent year over year. Fuel costs are estimated to be $2.40 to $2.50 per gallon. The carrier plans to keep full-year capacity growth to 1 percent year over year.
