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In the past week, Southwest Airlines LUV announced that it will end its long-standing free baggage policy. The change will take effect on May 28. Meanwhile, Frontier Airlines, the wholly-owned subsidiary of Frontier Group ULCC, has decided to offer free checked bags for summer travel. Latin American carrier Copa Holdings CPA reported impressive traffic numbers for February.
American Airlines AAL and JetBlue Airways JBLU revised their respective guidance for the first quarter of 2025 lower, citing a slowdown in consumer and corporate travel demand. They joined Delta Air Lines DAL in revising guidance for the March quarter downward at the J.P. Morgan Industrials Conference. The DAL news was covered in detail in the previous week’s write-up.
Recap of the Recent Most Important Stories
1. In a bid to improve earnings, Southwest Airlines has decided to charge some of its customers for checked bags. This marks an end to it being the only major U.S. carrier to allow customers to check two bags at no cost. Lackluster earnings results lately have increased pressure on LUV to revamp its business as it strives to rise its operating margin to at least 10% in 2027 from 2% in 2024. The policy shift at LUV may hint at the growing influence of activist investor Elliott Investment management. Passengers who buy any ticket except LUV’s top-level Business Select fare will have to pay fees for checking bags. Customers who buy a Business Select ticket will still be able to check two bags for free. Top-tier A-List Preferred frequent flyer program members will also get two checked bags for free. The amount required to check a bag has not yet been disclosed.
LUV currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
2. Budget carrier, Frontier Airlines, has decided to walk an opposite path. Per a promotional offer, ULCC passengers are eligible to receive a bundle, including a seat assignment and a free carry-on bag. The offer is applicable for passengers who book in the March 19-24 time frame for travel through Aug. 18. The promotion applies for nonstop trips booked on Frontier’s website or app. For ULCC flights departing between May 28 and Aug. 18, passengers can get a free checked bag. The booking has to be done with promo code FREEBAG.
3. AAL now expects a loss per share of 60-80 cents in the first quarter of 2025 compared with the prior expected loss of 20-40 cents. First-quarter total revenues are now anticipated to be approximately flat on a year-over-year basis. This marks a downfall from the prior expectation of 3-5% year-over-year growth. The disappointing guidance came on the back of the softness in the domestic leisure segment (primarily in March), coupled with the mishap of AAL Flight 5342. System capacity is still estimated to be either flat or decrease up to 2% from first-quarter 2024 levels. Cost per available seat miles (adjusted) in the March quarter is still expected to increase in high-single digits from first-quarter 2024 actuals.
