Southwest didn't plan it this way, but the introduction of a huge revenue stream -- money collected from checked bags -- will happen during a time when revenue from base flying has taken a hit.
Southwest's checked-bag fees will take effect for flights booked beginning May 28. CEO Bob Jordan called it a "unique opportunity for Southwest to gain significant benefit relative to our peers," during the airline's Q1 earnings call on Thursday.
COO Andrew Watterson said he's confident that the airline will be able to introduce bag fees with "minimal disruption." In its Q1 report, Southwest said it has seen no evidence that customers will book away from Southwest because of checked-bag fees.
Like Delta and United, which had previously reported Q1 results, Southwest saw demand weaken as the quarter went along.
"The year started out very strong," Jordan said. "However, that changed and we saw demand weaken as the quarter progressed, especially in leisure demand. Since that time, we have seen softer booking trends continue into the second quarter."
Southwest noted that it is currently more heavily weighted in domestic leisure travel compared with larger industry peers. The airline's extra-legroom seats won't be offered for sale until the end of September for flights beginning in Q1 2026.
Because domestic leisure travel is slumping, Southwest will reduce flying in the third and fourth quarters.
While schedules are not final, Southwest expects to reduce both Q3 and Q4 capacity by roughly 1.5 points and anticipates that full-year 2025 capacity will now be up roughly 1% year over year, which would be on the low end of the prior expectation of up 1% to 2%.
Southwest said this modest growth is driven entirely by an increase in aircraft utilization because of red-eye flying and a reduction in turn times.
Because of macroeconomic uncertainty, Southwest didn't provide a revised earnings guidance for 2025. The airline remains confident that it will achieve incremental earnings of $1.8 billion in 2025 and $4.3 billion in 2026 from its initiatives, including extra-legroom seats and checked bags.
Southwest reported an operating loss of $223 million and a net loss of $149 million in the first quarter.
Expedia provides early returns
During the earnings call, Southwest discussed another recent initiative, the selling of flights on Expedia.
Two months after the initiative began in late February, Southwest said 4% to 5% of the airline's bookings are on Expedia. Watterson said most of the Expedia customers are new to Southwest or are "customers we haven't seen in a long time."
He added that Expedia has been an effective and efficient way to reach customers in markets where Southwest operates in secondary airports, like Boston and New York.