Southwest Leadership Makes Its Case With New Products, Capacity Cuts

Skift Take

As Elliott continues to press its case for new leadership at Southwest, the carrier unveiled a slate of changes ranging from assigned seats to airline partnerships at its investor day on Thursday.

Meghna Maharishi

It hasn’t been an easy year for Southwest Airlines. 

Boeing delivery delays, along with sustained demand for premium and international travel, and expensive labor contracts have eaten into its profits. And now, it has an activist investor that has been demanding for a leadership change. 

But Southwest hopes it can restore its profitability and fend off Elliott Investment Management. At its investor day in Dallas on Thursday, Southwest executives rolled out a set of changes to the carrier’s business model and made a case for the current leadership team to shareholders.

Changes include assigned and premium seating, airline partnerships, red-eye flights and cutting capacity in unprofitable areas. Southwest also appointed a new member to its board, Robert Fornaro, a former CEO of Spirit Airlines and AirTran. 

It announced a $2.5 billion share buyback program Thursday morning, hoping to appease shareholders. 

The changes haven’t persuaded Elliott. The hedge fund said competitors have been able to implement similar changes in a quicker time frame.

“This is yet another long-dated promise through which Mr. Jordan is playing for time, not success, but he is playing with shareholders’ money,” wrote Elliott partner John Pike and portfolio manager Bobby Xu. 

Southwest CEO Bob Jordan said he believed a proxy fight was “not in the best interests of the company.”

“For Elliott to call that plan rushed and haphazard is, in my opinion, inane,” Jordan said at the company’s investor day in Dallas on Thursday. 

Assigned and Premium Seating

One of the biggest changes to Southwest’s business model is assigned and premium seating. Ryan Green, Southwest’s executive vice president of commercial transformation, said the carrier would start selling tickets for assigned and premium seating in the latter half of 2025, and will start operating such flights in 2026. 

He also said the cabins would be configured into four zones: one in the back with standard seating, two zones with extra legroom, and another zone in the front of the plane with standard seating.

The carrier also plans to start charging seat-selection fees at varying prices.

Green said the decision to change its seating model came from an extensive survey it conducted, where customers said assigned seating and premium seating were among their top preferences. 

These new seats will be denoted by a light blue top, they also have deeper cushions and longer headrests, executives said during a tour of the cabin to reporters. 

Around 80% of Southwest customers wanted assigned seating, according to the survey. The survey also found that 86% of non-Southwest customers preferred the model. 

Customers flying on Southwest’s Wanna Get Away fare — its version of basic economy — won’t be able to pick a seat. Southwest executives said more details would be revealed closer to the change taking place. 

Maintaining a 2 Free Checked Bags Policy

A contentious point between Southwest and Elliott has been checked bag fees. Southwest was firm in its plan to maintain its two-bags-fly-free policy.  Elliott said it believed that Southwest should consider charging them — other carriers like United, JetBlue and American have raised their checked baggage fees. 

Green said Southwest tested the policy in the survey and found that any revenue from bag fees wouldn’t make up for a loss in passengers. 

“It is far and away the top feature that differentiates Southwest from our competitors, and it is one of the top criteria in why customers choose Southwest Airlines,” Green said. 

Red-Eye Flights and More Capacity Cuts

With the introduction of red-eye flights, Southwest hopes it can mitigate the impact of Boeing delivery delays on its operations. 

“This, combined with essential only hiring, will allow us to eliminate our current Boeing driven overstaffing drag in 2025,” Jordan said at the event. 

Chief operating officer Andrew Watterson said the red eyes would potentially increase revenue performance on Southwest’s Hawaii routes. 

On Wednesday, Southwest said it would cut its Atlanta service, impacting around 300 pilot and flight attendant positions. Watterson said Southwest plans to make more cuts in unprofitable areas. Specifically, Watterson cited Oakland, California and Hawaii as other areas where Southwest would shift capacity. 

Airline Partnerships

Earlier Thursday morning, Southwest said it would start partnering with international carriers to expand its network. Southwest’s first partner will be Icelandair, and expects to launch flights at Baltimore-Washington International Airport in 2025. 

Green said Southwest plans to expand the number of gateways through this partnership and could possibly add another carrier to its network in 2025. 

“Once we’ve launched assigned seating, we intend to make partner airline flights available for purchase through our own channels,” Green said. “Rapid Rewards will also be integrated, giving members the ability to earn and redeem points for global destinations and further improve the program’s value proposition.”