Southwest Leadership Makes Its Case

27.09.2024 - 14:59 / skift.com / Robert Fornaro / Ryan Green / Bob Jordan / 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. 

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.