MW Southwest's new baggage fees to boost profits by more than $400 million, analyst says

By Steve Gelsi

Discount airline's shares rise as Jefferies analyst upgrades the stock, citing an earnings boost from luggage fees

Customers of Southwest Airlines Co. may gripe about paying what was formerly free for decades - but at least one Wall Street analyst believes it will boost the company's profits and its stock price.

Southwest's plan to end its bags-fly-free policy was first revealed in March, but on Tuesday, the company announced that one piece of checked luggage will cost $35, while a second will cost an additional $10. The fees will go into effect on May 28, with exceptions for Business Select fares and "A-List Preferred" members of the Rapid Rewards loyalty program.

Investors seemed to like the news, as Southwest's stock $(LUV)$ surged 5.6% in afternoon trading. The stock has now ascended 16.9% in May, which puts it on track for its best monthly performance since it soared 21.2% in June 2023.

Jefferies analyst Sheila Kahyaoglu also liked the news, as she upgraded the carrier's stock to neutral from underperform. Kahyaoglu believes the new bag fees charged to customers will add about $430 million to earnings, before interest and taxes, this year.

She also upped Southwest's stock price target to $33 a share from $24, thanks in part to the company's overall program to generate roughly $1.8 billion after pressure from activist shareholder Elliott Management.

Kahyaoglu said Southwest has projected $1 billion from new revenue-generating efforts, $370 million in cost savings and up to $500 million from initiatives on its fleet of planes.

Only about 15% of Southwest's clients purchase the cheapest tickets found on searches, while the rest typically spend more, she said. This gives Southwest a chance to upsell other services and perks to clients.

This market dynamic "stimulates low-end competition while still offering loyalty" benefits, Kahyaoglu said.

Including Tuesday's moves, Southwest's stock has fallen 2.8% in 2025, while the U.S. Global Jets ETF JETS has dropped 10.4% and the S&P 500 index SPX has gained 0.6%.

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 27, 2025 15:35 ET (19:35 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.