Key Takeaways
Southwest Airlines ( LUV ) shares surged Tuesday after the airline announced its latest revenue-generating changes amid pressure from activist investor Elliott Investment Management.
The airline said it would introduce a basic economy ticket option and baggage fees, ending some of Southwest's trademark perks . Certain members of the airline's rewards program will still be eligible for one or two free checked bags once the policy changes for flights booked on or after May 28.
The introduction of baggage fees are the newest change for Southwest, which in July announced an end to its famed open seating policy and introduced overnight flights, which started last month. The airline has since said it plans to start booking assigned seating flights in the second half of this year and roll out the changes in 2026.
“What’s changed is that we’ve come to realize that we need more revenue to cover our costs,” Southwest COO Andrew Watterson told CNBC Tuesday. “We think that these changes that we’re announcing today will lead to less of that share shift than would have been the case otherwise."
The changes follow months of disputes with Elliott, which built a stake in Southwest last year and pushed for changes at the executive and board level . In October, the sides agreed to a settlement that saw five Elliott-backed candidates added to Southwest's board. Also on Tuesday, Southwest lowered its projected growth for first-quarter revenue per available seat mile to a year-over-year increase of 2% to 4%, from 5% to 7% previously.
Southwest shares were up more than 8% in early trading, though despite Tuesday's gains, they've lost about 9% of their value since the start of the year.
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