Earlier this year, Southwest Airlines made the controversial decision to end its longstanding policy of allowing two free checked bags for each customer. However, as the airline implements the policy change this month, it sounds like they will have a major problem on their hands going forward.
As Roger Dooley of Forbes points out, before Southwest officially decided to ditch its policy of free checked bags, the airline conducted its own research that indicated the change would lead to about $1.8 billion in market share compared to at best $1.5 billion in annual bag fee revenue.
"Southwest projected $1.5 billion in annual bag fee revenue. But if its own research about losing $1.8 billion in market share proves accurate, this could become a textbook case of how short-term financial pressure can destroy long-term brand value," Dooley wrote for Forbes.
Simple math indicates that the change is a losing proposition in the long run as they are losing more potential revenue in market share than they are gaining from the bag fees.
"The real test isn’t whether Southwest can collect $35 per bag. It’s whether it can keep collecting anything at all from long-term, loyal customers who now have plenty of motivation to look elsewhere. It’s too soon to tell how all this will shake out, but it’s clear Southwest has placed a high-risk bet that it will retain most of its customers despite the changed brand experience," Dooley wrote.
We'll have to see how the airline adapts after making the controversial change, but the initial projections seem to indicate that this could work for Southwest Airlines in the short term, it does not seem to be sustainable in the long run unless something else changes.
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