Southwest is under pressure to make big changes to its planes, flights, and bag rules: Here's what they could all look like

18.06.2024 - 21:19 / insider.com / Robert Jordan / Ryan Green / Henry Harteveldt / Richard Aboulafia

Activist firm Elliott Investment Management has taken a $1.9 billion stake in Southwest Airlines and has proposed big changes — including a new CEO — to shore up the company's stock price and fix what it's called mismanagement.

Many of the changes are behind the scenes, like a board shake-up and new C-suite talent, but others (if enacted) could affect Southwest's quirky customer-facing features that make it a unique carrier in an industry that increasingly looks the same these days.

In some cases, Southwest is already considering changes or has been rumored to for years. Other changes would be brand new for the 57-year-old airline.

"We are convinced that Southwest represents the most compelling airline turnaround opportunity in the last two decades," Elliott said in its letter to Southwest's management onJune 10.

Elliott has pointed to possible revenue opportunities for items like bags and seats, while experts told Business Insider that changes to Southwest's network and systems could give customers more choice.

"They want the airline to start acting like every other airline, like charging for checked bags, introducing basic economy, creating an extra legroom coach seat, and more," Henry Harteveldt, a travel analyst and president of Atmosphere Research Group, said.

Elliott's proposal called attention to one of Southwest's most visible perks: two free checked bags. The proposal suggested unbundling the fare and charging for bags could generate more revenue.

However, Richard Aboulafia, managing director of aerospace consulting firm AeroDynamic Advisory, told BI that Southwest and its customers may resist the idea as the perk boosts loyalty.

Southwest CEO Robert Jordan said at a Politico event in June that 50% of the company's consumer base chooses Southwest because of the free checked bag policy, Reuters reported. CCO Ryan Green told CNBC in April the change was not on the table.

There is a way for both sides to win, according to Harteveldt: Give free checked bags to Southwest credit card holders.

American, Delta, and United offer complimentary checked bags as credit card perks. Southwest could capitalize on the same strategy with its co-branded Chase cards.

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Baggage fees were worth an estimated $33.3 billion to global airlines in 2023, according to a report from IdeaWorksCompany, a consultancy for airline ancillary revenues.

Southwest has for months been discussing changes to its seating policy as a way to boost revenue, but Green told CNBC that adding another cabin to the aircraft — à la business class or premium economy —is unlikely.

Elliott suggested seat assignments could be a lucrative revenue stream. Southwest already earns ancillary revenue for early boarding — and it recently