Southwest: Bag Fees Beat Projections, Corp. Demand Recovering

Southwest Airlines’ implementation of its new baggage charges got here with “no negative impact to the operation,” Southwest president and CEO Bob Jordan mentioned throughout a Thursday earnings name. 

“The revenue contribution from bag fees has exceeded our expectations so far,” Jordan mentioned. 

The bag-fee modifications have been introduced throughout the first quarter and applied on May 28.

Southwest CFO Tom Doxey mentioned that the service estimates checked-bag charges will lead to greater than $350 million of earnings earlier than curiosity 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 additionally famous 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 earlier than the modifications befell, “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 12 months, Southwest additionally introduced it could finish its open-seating coverage in 2026, and earlier this week, mentioned tickets with assigned seats would go on sale July 29, with flights to start Jan. 27.

“I want to reiterate that our current initiatives are not the endpoint in our product strategy and evolution,” Jordan mentioned. “We are committed to evolving further to meet the needs of our current and our future customers.”

Watterson mentioned of company demand that within 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 mentioned. “So, a good inflection in Q2 for corporate.”

Southwest additionally up to date its 2025 plane supply assumption to 47 deliveries from 38 as Boeing continues to ramp up manufacturing, Doxey mentioned. The service obtained 17 plane within 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 income of $6.6 billion, down 1.3 % 12 months over 12 months. Total income was down 1.5 % for the interval to greater than $7.2 billion. Net revenue was $213 million in contrast with $367 million a 12 months prior.

Second-quarter capability elevated 1.6 % 12 months over 12 months. Average gas prices have been $2.32 per gallon.

Southwest projected third-quarter capability to be flat in contrast with Q3 2024. Revenue per obtainable seat mile is projected to be down 2 % to up 2 % 12 months over 12 months. Fuel prices are estimated to be $2.40 to $2.50 per gallon. The service plans to maintain full-year capability development to 1 % 12 months over 12 months.

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