Wall Street Questions Southwest Airlines’ (LUV) Bag Fee Policy

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Southwest Airlines may be the most successful airline in the history of the U.S. when it comes to finances, but analysts are still questioning the airline’s “bags fly free” policy. The airline allows passengers to carry first and second bags free of charge.

The company just released their Q2 earnings report in July, but missed estimates. The carrier also expects revenue per available seat mile to fall by as much as 4% in the current quarter.

Shares plummeted 11% as a result the day of earnings. Today shares are down 14% to date.

The unions that represent Southwest’s pilots and mechanics called for CEO Gary Kelly to step down on Monday. The unions cited that the airline spends too much money to buy back shares and not enough to update its technology.

According to JPMorgan analyst Jamie Baker, Southwest “continues to resist certain industry efforts aimed at improving revenue (i.e. bag fees and plain vanilla fare increases).

“While shares were uniquely punished during earnings and are by no means grossly overpriced in our view, revenue lethargy and labor uncertainty suggests LUV shares may not participate as fully as others should industry self-help initiatives take root,” Baker wrote.

Considering it’s been about two years since Wall Street pressured Southwest to add the bag fees. Could it be time to finally do it?

Disclaimer: We have no position in Southwest Airlines Co (NYSE: LUV) and have not been compensated for this article.