Southwest’s bag fees and other changes could backfire, Fitch warns

Southwest Airlines‘ new policies such as charging for checked bags for the first time could backfire, Fitch Ratings said Thursday.

Southwest is reversing its decades-old two “bags fly free” policy for checked luggage in May, though there are exceptions for travelers with a Southwest credit card, elite frequent flyer status or who buy the highest classes of tickets.

It is also launching assigned seating and a no-frills basic economy fare and said flight credits will expire.

Fitch issued a negative ratings outlook for the company, long known for its strong balance sheet, because “Southwest may shift to a less conservative capital allocation and financial policy, while ongoing strategic changes have the potential to impact its competitive position relative to network carriers.

“Items aimed at improving profitability such as the introduction of bag fees and expiring flight credits risk eroding Southwest’s competitive strengths relative to peers,” Fitch continued.

Social media posts from Southwest, even if they’ve been unrelated to policy changes, have drawn angry comments about the shifts, but market share loss, if any “is uncertain,” the firm noted.

Southwest didn’t immediately comment. The airline has been under more intense pressure to improve margins since activist hedge fund Elliott Investment Management took a stake in the carrier and later won five board seats in a settlement last year.