>Southwest already allows cancelling your ticket up to the last minute for a future credit so presumably most people that will miss the flight do so already. I wouldn't expect this impacts their fares much, if at all.

One reason you'd let people cancel at the last minute is because you overbook flights. If you have 100 seats, book 105 people and then 4 cancel, that cancellation didn't cost anything.

If you book 100 people and turned away other passengers, then 4 people cancel at the last minute, now you lost 4 sales.

Southwest's cancellation policy is a big reason why I love them.