Southwest Airlines is changing its long-standing business model in an effort to increase annual earnings by more than $4 billion by 2026. The company confirmed it will roll back several hallmark policies as part of a broader financial strategy.

One of the biggest changes is the end of the airline’s “Bags Fly Free” policy. Most passengers will now pay standard baggage fees, a move the company estimates will generate roughly $800 million in additional revenue.

Southwest’s open seating system will also be changing. Beginning with bookings in late 2025, the airline will shift to assigned seating, including premium options. Full implementation is expected in early 2026. According to the company, internal research found that 85% of non-Southwest customers cited open seating as a reason for avoiding the airline.

The airline is also revising its fare categories and altering flight credit policies. New credits issued going forward will come with expiration dates, ending the previous practice of indefinite validity.

Additional efforts to diversify revenue include exploring premium lounge offerings and expanding international service—both aimed at attracting business travelers.

These changes are the airline’s most significant operational overhaul in decades. The shift to assigned seating alone is projected to bring in $1.5 billion annually, largely by appealing to higher-paying customers and improving pricing flexibility.