It’s being broadly reported that Southwest Airlines is freezing hiring and promotions to save money, and also pausing summer internships. But the details of cost cuts are actually much deeper, and hit at the core of Southwest’s identity.
Retaining top talent can be tough when you tell people who have opportunities elsewhere (because they’re top talent!) that they cannot be more rewarded where they’re at. And doing this at the same time you cut off bringing in new talent can be a recipe for disaster. But that’s just brain drain at the top. What Southwest is doing is actually cutting its investment in culture, which is what sets them apart from other carriers.
Here’s the weird message that went to employees telling them they won’t invest in in-person events to save money. This isn’t about ‘saving the company’ or a battle cry to win against external threats. Instead they are going “to fight to return to excellent financial performance.” And they’ll do this by “delivering excellence, enhancing efficiencies, and capturing value throughout the Company.”
As we’re focused on modernizing our business, we’re also intent on lowering our costs, which have outpaced our revenue growth, pressuring our financial returns. An extremely important cost initiative is underway to help us make significant changes to become a lean, efficient and agile company.
You’ll begin to see and feel efforts related to our cost initiative in the coming weeks, including some hard decisions I’ve had to make. One example-we’re further limiting discretionary spending this year, and I’ve made the tough decision to cancel the 2025 Rallies that were planned for Dallas and Phoenix, along with the big screen events across the system at AMC Theaters. I’m disappointed that we won’t gather to kick off our plan for the year at Rallies, celebrate our accomplishments, and spend time together in person. The timing simply isn’t right when we’re striving for cost discipline and focusing on a leaner organization that’s closer to the work, closer to the frontline, and closer to our Customers.
Beyond cancelling Rallies, we’ll delay other key business activities when it makes sense. This includes Noncontract internal and external hiring and promotions. We’ll also pause on most summer internship offers. Every single dollar matters as we continue to fight to return to excellent financial performance.
While I am absolutely optimistic about our plan and where we are headed, we’re facing some of the biggest challenges yet. The dynamics of our industry are more complex than we’ve ever seen in our history. Customer expectations continue to evolve, and we must keep pace. As we focus on delivering excellence, enhancing efficiencies, and capturing value throughout the Company, we, too, must evolve-and we must fight to win, just like we always have.
Backing off on investments in the culture seem like small ball savings. Perhaps it strikes me as such a bad move because it reminds me of the low point of Continental Airlines.
When Gordon Bethune arrived there in 1994, initially as Chief Operating Officer and then as CEO, employee morale was in terrible shape, operational performance was poor, and they were pinching pennies. One of his first symbolic moves was to restore a bit of dignity and pride by reversing some of the penny-pinching measures of the previous regime. One of those was shutting down the decorative fountain in front of the airline’s Houston headquarters. Bethune had it cleaned up and turned back on, symbolizing a fresh start and a return of pride in the workplace.
Turning the fountain back on was a small gesture that told everyone: ‘We care about this place, and we want it to look like we do.’
Southwest has capitulated to Elliott Capital which sees the carrier’s unlevered balance sheet as a pot of gold. Board chair Gary Kelly is out, but CEO Bob Jordan keeps his job – for now.
Southwest Airlines CEO Bob Jordan
Now they’re flailing around looking for revenue – they’re moving to assigned seats so they can sell seats, and extra legroom seats so they can upcharge passengers, all while giving up fees for early boarding – but that won’t come until 2026. In the meantime they’re cutting costs, and this move takes costs out of employee morale and from their talent pipeline.
It doesn’t make sense to spend money that lacks a coherent story for how it earns the business a return, but fundamentally what sets Southwest Airlines apart is its culture. Around a quarter of their employees are new since the pandemic, so it’s a culture that continues to need to be refreshed.
Southwest hires for personality, and sends welcome kits, swag, to new hires before they start training. When a class completes training, the whole company comes out into the corridors of headquarters to welcome them and cheer them with music blasting as they walk a red carpet.
Front line people from gate agents to flight attendants at Southwest Airlines usually seem to like their jobs, which can be a contrast from other carriers. That’s notable for such a heavily-unionized airline.
Investment in the culture would seem to be more important now than ever. When they were under attack from an activist investor, there was no employee groundswell movement to fight back. There was no ‘Keep Delta My Delta’ movement, like what employees there did when Doug Parker and US Airways tried to take them over. They wouldn’t have stayed silent for Herb Kelleher or James Parker.
Ultimately the airline’s management needs to start with a positive message for employees about what’s at stake, what they’re fighting for, and offer an inspiring idea for everyone to strive towards that bigger than themselves. ‘We need to make more money’ and so reducing investment in the work experience isn’t that message.
Not a ‘great’ sign. With the recent Spirit and Silver restructuring, it would not be surprising if Southwest (and others) did something similar. I’d expect jetBlue to be next.
“Every dollar counts” is reminiscent of Doug Parker’s famous phrase “don’t spend a dollar more than we have to.”
And so begins the slow death of Southwest Airlines
As I have long said: Don’t go out of the way to be loyal to a company. They will never be loyal back (even a place that traditionally has, such as Southwest).
I was pretty much a die-hard Southwest flier up until mid-2007. That’s when Virgin America started flight ops, and I realized that flying could actually be fun. Don’t get me wrong: flying WN was fine, but flying VX was new, fun, and had me rediscovering the joys of flying non-stop!
I occasionally fly on business, but the vast majority of my flights are leisure. I checked, and I have flown WN 102 times, dating from 1996-2024. But from 2007-2018, I flew VX 131 times. And while I flew Alaska a handful of times prior to their takeover of Virgin America (<10x), I've now flown AS 119 times.
Southwest is not always the cheapest,¹ as one they (usually) were. And, with status on other carriers and/or airline credit cards, I get free checked bags on other airlines. So, today, what does Southwest bring to the table, so to speak? Saying "We're not Spirit" isn't really enough…
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¹ Sorry, but ULCCs like Spirit, Frontier and Allegiant were never serious considerations for me or my family.
Here’s the thing, with the corporate culture of layoffs that began in the 1980s people, particularly younger workers no longer see their employer as a long term relationship. There’s less desire for hoopla. I used to really be into it 30 years ago, today no desire. The last corporate dinner I went to I just couldn’t wait to get the hell out of the place and back to my hotel room. It’s like let me do my job and take that money (dinner was over $11K, I know because they gave the bill to me since I have a corporate credit card) and use it for salary/bonus. Just give me the money. I have no infinity to my employer, it’s a contractual relationship.
This is a very bad sign for a company, you don’t build loyalty by taking things away from your employees, reminds me of National Lampoon’s Christmas Vacation where the boss took away the bonuses people were expecting and the angry reaction that ensued.
This is stupid with two ohs. How sad for such a storied and fun airline to suffer because some rich soulless scumbag feels the need to become richer.
In fairness, WN has a history of consistent profitability, which has changed recently. They are less familiar with how to navigate such territory as others who have experienced more ups and down. They may not recognize this “small ball” stuff as being small.
They can save the big party for when they actually fix their product and roll out the assigned seats and extra legroom that people with money are willing to pay for. I’m personally pretty bullish on their outlook, because there are just so many who avoid them because of the lack of assigned seats. The day they fix that is the day they will open the floodgates to the deluge of flyers who have been avoiding them for years or decades.
The cost of the in person events is peanuts. No, it’s peanut dust and can only harm them long term.
Now, if they said, “We did our research and discovered that newer employees aren’t motivated by in-person events as they once were, *AND* we will take those savings and redistribute it to the employees,” that could at least be a bitter pill swallowed with some kool aid.
But no, like many execs I personally know, they worship the almighty dollar so the stock price goes up $.05 and the hedge funds make an extra $10 million.
Suggestion? Instead of punishing employees, provide a revenue incentive. Use the awesome people you have to create new ideas, get buy-in, so that you can actually execute on them.
It seems Robert Jordan is focusing on tactics (like canceling the in person meetings and ending internships) besides building a solid winning strategy.
Off the top of my head, I would focus on these 3 core strategies to rescue SW:
1) Redo your pricing and capture lost revenue opportunities but present it differently then charging extra. I.E., offer lower pricing without bags. Or include a drink in the main fare, and offer a way to have without it. It’s all about marketing to your loyal fan base so that the main fare still has tons of value.
2) Invest in and recognize your people. Start with calling them out by their name. What is the most popular word in the English language? Your own name. Recognize super stars- you already know who they are but feature them everywhere in your ads and social media.
3) Expand into new revenue and financial models. Besides credit cards, offer a SouthWest Crypto coin and market it as an asset- not a security- and make it a badge of honor and customer loyalty to own SW crypto with the love logo.
If I wasn’t already retired early now I would apply for the CEO job because this seems really easy to fix with the right strategy, buy-in from all stakeholders, and most importantly, execution.
This is unbelievable. As a passenger since 1980, the one thing that has distinguished SWA has been it’s unique culture led by Herb. I make my living via interim leadership of distressed companies. One of the first things I implement are programs to develop a particular culture and it’s not nickel and diming events that bring people together. Look what happened to GE. Boeing, etc when the financial people ran the companies. Get the bean counters out and the ops people back in. Herb is rolling over in his grave.
The CEO didn’t mention switching to single ply toilet paper in all employee and onboard bathrooms to save more money.
The idiocy and futility of a “majoring in minors” business management strategy.
It never works.
It is so apparent by the comments here that most of these people have absolutely no clue of the Culture of Southwest Airlines. Herb Kelleher always said “The fact is that Southwest is not for everyone and you have a choice to make when you fly”. Another Herb quote is “At Southwest we don’t hire for knowledge. We hire for attitude, you can teach knowledge”.
Sadly the hiring practices have deteriorated and people are no longer being hired for attitude. The havoc raised this past few years, first Covid then the Hedge Fund/Corporate Raider, Elliott Investment Management, has served to diminish the Culture that Employees once held so dear. Herb never believed in leadership by fear. That is what Southwest is dealing with these days. Bob Jordan is a very good man and he cares deeply about the employees and the Company. But he inherited a mess from Gary Kelly that cannot be fixed overnight. Gary Kelly was right there with Elliott in that he cared more about the Stockholders than the Company. Had he remembered the lessons Herb Kelleher taught him and if he had kept them in the forefront, this would not be happening. He ignored the basic needs of the front line Employees, keeping up the system and the equipment. See to it that your Employees are happy and they in turn will make the Customers happy. The Employees used to throw 100% support during rough times without complaint. Cancelling Rallies for this year would have been met with acceptance unlike the complaints I have read today.
I guess this is just another example of today’s society. Whine and complain until you get your way no matter who gets pushed aside or hurt.
Elliot shadow management of Southwest has been a disaster and it will only get worse.
This is what happens when Hedge Funds, who know nothing about the businesses they try and control as “activist” investors, get involved. Ellliott Management has no business running an airline or for that matter, investing pension money. As to Southwest, eventually it will be United Airlines, dba as Southwest until the SOC is achieved. The future isn’t bright for WN.
For me , I have always admired the WN culture and the generally upbeat attitude of the employees . If morale plummets , that would be a potentially negative game changer . I Haven’t flown WN in years . The reality for me is no premium class = no business to WN . Euro biz or enhanced legroom seats don’t move the needle for me .its time to decide if they want to be Allegiant or competitive with the majors . B6 , F9 , NK have all realized , probably grudgingly, a true premium cabin experience is necessary in today’s competitive environment.
Interesting article, reading the comments I wish people would stop blaming Mr. Gary Kelly for this. Aviation is fickle. What went on 20 years would not work today.
I saw this and I thought that it was explicitly an effort to sniff out the old culture. These types of feel good events are definitely cut in an effort to find what I call “Deep Cheap.” The culture of the business is just lowest cost. It hollows out a business.
I would not be surprised to see SW gone in 5 years.
They missed the premium revenge travel trend. And are casting aside their ‘it’s better than taking the bus” core market that made them successful.
Long term it’s not cost cutting that makes a company profitable. It’s having a compelling value proposition for consumers and focusing costs in line with that brand promise.
Rudderless ships run around.
WN headquarters is bloated with staff, needs to be cut and will be. To many useless VP’s. The truth is that yes, Gary killed the culture, pitted departments against each other, and hired incompetent, useless, yes men, middle managers and station managers in every department for cheap. The Rally’s with out herb or someone like him were just dumb. These are small, decent moves to stop wasting money as headquarters has been flushing it down the toilet on themselves.
“Cost Discipline” is another way of CEO Bob Jordan saying he’s spending the company picnic funds on a $2.5B stock repurchase, since he can’t drive share price on perpetually dismal RASM growth.
He’s messing with the lone competitive advantage SWA has, its culture.
I’ve said stuff to this effect before, but I’d really like to see some “activist investor” be met with a public, cordial invitation that “If the returns you are receiving for your money are not to your liking, we encourage you to consider investing in another company more suited to your objectives. Our management will be happy to offer suggestions.”