Southwest Airlines Could Net $430M From New Baggage Fees, Says Analyst — But Retail Traders Stay Cautious

Southwest Airlines (LUV) stock rose 5.5% on Tuesday after the airline introduced fees for checked bags for the first time.

The company said it would charge $35 for one checked bag and $45 for two. However, customers who hold the airline’s credit card or have elite status will still get to carry checked bags for free.

While its peers had introduced fees on checked bags years ago, Southwest had refrained from following suit and maintained a passenger-friendly image with popular policies such as open seating and the slogan “bags fly free.”

However, a slump in earnings following the COVID-19 pandemic and subsequent operational failures has pushed it to take several actions to rein in costs. This year, it announced its first mass layoffs.

Jefferies upgraded the stock to “Hold” from “Underperform,” and raised the price target to $33 from $24. The new price target implied a 6.6% upside to the stock’s previous closing price on Friday.

The stock has a consensus price target of $28.61, according to FinChat data.

Jefferies analyst Sheila Kahyaoglu stated that the new bag fees are expected to increase the company's earnings before interest and taxes by $430 million this year, according to a report by MarketWatch.

Kahyaoglu reportedly said that only about 15% of Southwest’s customers buy the cheapest tickets found on searches, and the rest typically spend more, allowing the airline to charge customers for other perks and benefits.

Southwest intends to generate approximately $1.8 billion through a combination of initiatives, including the scrapping of its free checked baggage policy, cost cuts, and other initiatives related to redesigning its aircraft seating.

Retail sentiment on Stocktwits was in the ‘neutral’ (49/100) territory, while retail chatter was ‘high.’

“Bad move charging so much for bags, hope for the best!” one retail investor said.

Southwest stock has fallen 2.9% year to date (YTD).

Also See: SpaceX Starship Goes Farther Than Before — But Ends With Fiery Ocean Plunge

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Share

·

Add us on