Southwest Airlines has faced a challenging year, with Boeing delivery delays, increased demand for premium and international travel, and costly labor contracts impacting its profitability. In addition, the carrier is facing pressure from activist investor Elliott Investment Management to make leadership changes. In response, Southwest announced a series of changes at its investor day in Dallas, including assigned seating, premium seating, airline partnerships, red-eye flights, and capacity cuts in unprofitable areas. The carrier also appointed a new board member and announced a $2.5 billion share buyback program in an effort to appease shareholders.
One of the major changes Southwest unveiled is the introduction of assigned and premium seating, with plans to start selling tickets for these options in 2025 and operating such flights in 2026. The new seating configuration includes four zones, with different seating options and varying seat-selection fees. Customer surveys indicated that assigned and premium seating were among the top preferences for travelers, with 80% of Southwest customers and 86% of non-Southwest customers expressing interest in the new model. However, travelers on Southwest’s basic economy fare will not be able to select a seat.
Southwest also reaffirmed its commitment to its two-bags-fly-free policy, despite pressure from Elliott to consider charging for checked bags. The carrier conducted surveys that showed the policy as a top feature that sets Southwest apart from competitors, with customers citing it as a crucial factor in choosing the airline. Additionally, Southwest plans to introduce red-eye flights to help offset the impact of Boeing delivery delays on operations and increase revenue performance on Hawaii routes. The carrier also announced plans to make capacity cuts in unprofitable areas like Atlanta and shift capacity to more lucrative markets.
In a bid to expand its network and improve its offerings, Southwest announced partnerships with international carriers, starting with Icelandair. The carrier plans to launch flights at Baltimore-Washington International Airport in 2025 and integrate partner airline flights for purchase through its channels. This move will allow Southwest Rapid Rewards members to earn and redeem points for global destinations, enhancing the program’s value proposition. Southwest aims to increase its number of gateways and potentially add more partner carriers to its network in the future.
Despite the changes and announcements made at the investor day, activist investor Elliott Investment Management remains unsatisfied with Southwest’s response. The hedge fund criticized the carrier for taking too long to implement changes that competitors have already adopted, accusing Southwest of playing for time rather than pursuing success. Southwest CEO Bob Jordan defended the leadership team and the proposed changes, arguing that a proxy fight would not be in the company’s best interests. The coming months will show how Southwest navigates these challenges and implements its strategic changes to restore profitability and shareholder confidence in the airline.
