Will Southwest's Struggles Lead to Baggage Fees?
Photo courtesy of Southwest Airlines
Southwest CEO Gary Kelly is under pressure as employee complaints mount and investors express concerns about the airline’s financial performance. These upheavals could lead to major changes.
This is a big deal because Southwest has long been one of the most consistent carriers in the US when it comes to pricing and services.
Kelly has promised that one of Southwest’s most customer-friendly practices—not charging for checked baggage—will not change. However, the future of the airline's fee-free suitcase policy is now in doubt.
The first question is whether Kelly will even be there to defend Southwest’s baggage policy. Unions representing Southwest’s employees have been picketing for months as they try to get leverage in contract negotiations that have been going on for years (in some cases).
Several of the largest unions, representing flight attendants, ground crews and mechanics, have been pushing for a vote of no confidence in Kelly and other executives who are close to him.
Greg Puriski, the head the union that represents Southwest’s ground support staff, said that the airline has changed as it has grown. “The culture of Southwest is just not the way it used to be. It’s profits before people now, which is very disheartening. We just don’t like the direction of our company.”
The board of Southwest’s pilots union, arguably the most visible and vocal group of airline employees, has also issued a vote of no confidence. The board members reportedly voted unanimously.
Board supports Kelly
For their part, Southwest’s board of directors have voiced support for Kelly saying that the economic climate has made life difficult for the entire industry and any effort to remove Kelly would only exacerbate the current problem and stall contract negotiations.
A solution to the labor disputes could be possible, but given the fact that negotiations have been going on for years in some cases, a quick resolution does not seem likely.
Wall Street also unhappy
Because of Southwest’s poor second quarter performance, Kelly is also starting to feel pressure from investors. The airline’s shares have dropped dramatically since Q2 earnings fell short of expectations. Despite impressive profits over the past year and a half, Southwest’s shares are down 14 percent since the start of 2016.
Will Southwest start charging for checked baggage?
Kelly told the Wall Street Journal that "our customers would be enraged if we started charging for bags."
However, JP Morgan analyst Jamie Baker issued a report on Southwest that complained that the airline "continues to resist certain industry efforts aimed at improving revenue (i.e. bag fees and plain vanilla fare increases).”
Could the combined complaints of employees and investors lead to changes?
The two problems could actually be connected. One of the labor unions’ grievances is that Southwest is undertaking a major effort to buy back shares to relieve some of the pressure from investors. They are doing this rather than using profits to pay employees more.
It is likely that Southwest will have to make some sort of changes to their fee structure or fare policies. This may or may not include charging for checked luggage, but as the pressure from investors and employees mounts, major changes seem more and more likely.
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