Southwest Airlines changes – basic economy, bag fees, paid assigned seats, expiring travel credits and a devalued Rapid Rewards program – are the result of activist investor Elliott Management taking a significant stake in the airline and pushing for its own board members. They wanted the carrier selling planes and leasing them back, leveraging the airline’s balance sheet to fund stock buybacks. They got what they wanted, and a short-term bump in share price.
- They began selling shares in December and filed an SEC schedule 13D on February 2 reporting that they’d reduced their holdings to 9% of the company (albeit a 10.7% combined economic exposure including cash-settled swaps and swap-call options).
- At peak, they had a 16% economic interest in a September 16, 2025 disclosure.
Now that their ownership interest has fallen, it’s no longer appropriate to exercise the same degree of control over the company, and two of their board members have resigned – and will not be replaced.
David Cush and Gregg Saretsky have informed the Company that they are stepping off the Board effective Feb. 23, 2026….in connection with the departures of Cush and Saretsky, the Board intends to reduce its size from 13 to 11 members.
The damage, of course, is done. Southwest had its first layoff in company history. Yet profits fell in 2025 rescued from losses by cheap jet fuel and accounting games with Chase credit card revenue.
You would not expect a strategy of taking the most financially successful airline in history, discarding everything unique about their business model, and copying financial laggards JetBlue and American – but worse because they lack AC seat power, seat back entertainment, functional wifi, first class, lounges (yet!) and ovens for hotel meals on board – to a recipe for success.
Southwest Airlines was insular and bloated. They were slow-moving. There are changes they needed to make to their business for a long time. For instance, sticking to just Boeing 737-700 and -800 aircraft (including the MAX) doesn’t let them serve enough markets or feed enough passengers. Not selling tickets through online travel agencies was a mistake.
- They were losing out on a lot of customers, for instance anyone with American Express points or Citi points booking through those bank portals. That alone had to be at least 5 to 8 points of load factor.
- And they were unusually dependent on passengers on one side of most of their routes. For a flight between Dallas and Sarasota, Savannah or Syracuse, instead of traffic being evenly split between passengers from both ends of the route they were heavily skewed to Dallas passengers only because that’s who knew to go to Southwest Airlines to search for flights. They lost anyone looking up flights on Expedia.
- Of course, once they add third party distribution they’re comparing their fares against competitors. And Southwest, with bag fees bundled, was often more expensive! And then there’s a natural drive to unbundle (basic economy), especially since the Department of Transportation rule requiring displaying airfares with the cost of a checked bag was enjoined by the courts. They hadn’t innovated, they were stuck in a tough spot, and they had no other ideas but copying everyone else – and Elliott Management didn’t, either.
They don’t fly long haul international and didn’t have partners, which meant they didn’t just lose the business of their customers when those customers flew abroad (and many chose to give other airlines their business because they could use all of their flying to earn status that way) but they also couldn’t offer Europe and beyond as an enticement to frequent flyers to get and spend on their credit card. So they were losing out on revenue that’s fueling profits for the rest of the industry.
Southwest needed to make changes but they didn’t need to give up what made them special. And though the airline will keep spinning that everything they do is successful (just as they did before making these changes!), their activist investor is selling off at what could be the top.
Sounds like the Carl Icahn/TWA playbook
Mission Accomplished!
At Oakland, the plan is clear: Raise fares on any market where competitors are absent. When demand drops, reduce the schedule. Rinse and repeat (Some shrinkage may occur).
If enough new customers who avoided open seating show up, Southwest wins. If not…
Prediction: 6 months from now, SW and AA file Chapter 11 (or sooner).
Southwest flights are still not available on the AmEx online travel portal – any indications that could be coming any time soon?
Maybe it’s just me, but this seems a lot like what Carl Ichan did with TWA. Not that he was the first, nor was he the last.
As everyone who isn’t a shill predicted…
So did Elliott make money on this whole expedition?
I don’t own any LUV stock, but if I did, I would bail now.
Would be nice to have them admit they screwed up and bring back ‘bags fly free’! Then upgrade the interior of the planes to the 21st century!
Picard
LUV stock is up 80% in the past year and 30% since the first of this year -just 40 days old. Not many stocks have done that.
AA can only wish it had someone that could see the potential in AA and invest in it to be able to force change.
WN will be fine. AA, probably not so much.
@Jean luc Picard — Make it so!
@Tim Dunn — Real companies don’t like ‘pump n’ dump’ schemes, sir…
Quelle Surprise!
They cooked the books to raise the stock price….and exit when they know the underlying numbers and future quarters are bleak….
WN does have an opportunity to back track on the bags thing….and basic economy….but i think the damage has been done…..
When 2 BODs immediately resign…shows elliot is selling and selling it all quickly over the next month or so….i see them exit thier position by end of april…..as fast as they can….
i beleive they bought the stock at around 30 dollars a share – as of today its 54….so they made money….ruined a company and thousands of employees lives over thier wall street greed….its why main street hates wall street…..
And yet…………….THEIR PLANES WERE FULL every frigging time I flew them. Funny how you continue to pimp the idea that they were failing by not having this or that or something else but then you say they were the most financially successful airline in history.
Maybe…………..just MAYBE they knew what the hell they were doing. It’s bad enough the Elliot morons shot the company straight into the crapper but you continually point out all the things they did/do “wrong” and still people fly/flew them enough for them to NEVER LAY AN EMPLOYEE OFF until Elliot put their stink on them.
The question still remains: will they do what they clearly need to survive in the long run and add a full-service domestic first class cabin with all that entails? It’s been talked about lately, but no progress so far.
I was *so* loyal to WN, largely since I was in Nashville in the ’90’s when AA was drawing down their hub, and WN was building up their presence. Sadly, I’ve lost my allegiance, now that they’ve converted to a “regular” airline, esp with imposition of checked bag fees. They have lost their way.
Let me guess… the private equity bros struck again?
To have a clear idea of how bad things are, you just need to look at their 10K carefully.
Advanced sales down 600 million year over year when that line grew at all 3 legacy carriers (500 million at United, 400 million at AA, and 100 million at Delta).
Loyalty liabilities short term up 200 million but long term down 700 million. So, loyalty down 500 million when the programs are growing fast at all 3 legacy carriers.
At the beginning of 2025 they said that bag fees were going to increase EBITDA by 1.8 billion and it ended up being lower than in 2024. Just a 1.8 billion miss!!
Management are always trying to put lipstick on a pig saying how great the changes are working, but is plain bullshit. They screwed up badly and now they need to resort to cooking the books through accounting games so that Elliot’s greed is satisfied.
The saddest part is that a lot of people are buying their BS, even airline analysts, but it’s written on the wall. Sooner rather than later the truth will come out and a lot of people are gonna be shocked.
Thevsimple fact is that Swa was let bed by both its customers, and more importantly, its employees. Before dispucablebsvheming Elliott. Before gutless puke Jordan. Open seating WAS cherished. Nags Fly Free was LIVED by both customers and flights ght attendants ( what an absolute cluster post Elliott and Jordan the carry on bag fiasco is now for the flight attendants). But now all that LOVE is gone. The employees, the customers, DESPISE what SWA has become. Employee morals completely gone. Fierce loyalty by both employees and customers has been destroyed. Any business that has this happen to them will not recover.’period. Even if SWA brought back its two most LUVED features, Open Seating and Bags Fly Free, the damage has been done. The complete trust of their employees will never return. SWA broke its
Word, its promise. Herb etched that promise, that oath, into stone. And Elliottvand Jordan crushed and pulverized that very stone. Then ceremoniously and with great arrogance public all flushed the resulting dust down the toilet, laughing as they voided the solemn and heartfelt promises,dedication, and vision of Herb.
Detailed study of the financial timeline with Elliot needed.
@Doc423, @Gary: I’ll take the other side of that. $100? Send a$20 downpayment to Gary via CashApp, Zelle, or whatever Gary specifies. Bet is dated from the date of Gary’s article until the same date six months later.
@Marco Marozzi Silvestri: And therefore, your accountant’s explanation for the stock appreciation described by Tim Delta Dunn above, is?
@1990: Did you notice that “1990” appears over ten thousand times in the latest Epstein dump? Were you remodelling the island?
-:)
@IsaacM – they didn’t for a year and a half. They finally did and immediately started cashing out.
I expect a merger of the two and rebranding to “Texas Airlines” or event “MAGAir”
The real question is why Wall Street rewarded them for messing up the company.
The recent interview on Airlines Confidential was pure coal posting by the two executives. You could tell they thought all the recent changes were doing nothing.
@Marco – If you want to use Southwest’s 10-K as a reality check, there really are a couple of places where the numbers look ugly on their face. The cleanest “advance sales” proxy is air traffic liability, basically cash collected for future travel and related services that has not been recognized as revenue yet. Southwest’s air traffic liability fell from $3.393B at 12/31/2024 to $2.830B at 12/31/2025, a decline of $563M. Meanwhile, the comparable deferred revenue lines at the legacies went the other way over their comparable year end periods: United’s “advance ticket sales” rose $857M, American’s air traffic liability rose $559M, and Delta’s air traffic liability rose $50M. So yeah, Southwest down while the others are up, but the magnitude differences are pretty significant and they matter in the big picture.
The loyalty deferred revenue discussion is even more interesting. I suppose the big ask is what changed in mechanics. Southwest’s total loyalty deferred revenue went from $4.849B (2024) to $4.334B (2025), down $515M. Under the hood, the noncurrent piece of air traffic liability (which Southwest ties primarily to loyalty) dropped from $1.948B to $1.219B, so down $729M. If you back into the implied current loyalty portion from those disclosures, it rises by about $214M year over year. So yeah, the net liability dropped by about a half billion, with a big shift from long term to current. But the 10-K also points to changes in the co-brand credit card arrangement that accelerated revenue recognition and reduced deferred balances. That is the key nuance: deferred revenue is not so much a scoreboard for “program growth” as it is a mixture of sales volume, redemption patterns, breakage assumptions, contract terms with the bank partner, and timing of when performance obligations are considered satisfied. A smaller loyalty liability can reflect accounting and contract economics even if the franchise is healthy. Some might say that is why using that number as a straight proxy for loyalty momentum is a trap.
On bag fees and “a $1.8B EBITDA miss,” I’d be careful, because it does not quite line up with what the filing actually shows. Southwest did implement bag fees for most fare products in 2025, and the company itself cites the policy change among drivers of improved results. On a plain GAAP basis, operating income increased from $321M in 2024 to $428M in 2025, so the idea that “results ended up lower than 2024 by $1.8B” doesn’t fit the audited numbers, even before we talk about EBITDA definitions and adjustments. If someone wants to argue the bag-fee move was supposed to be transformational and wasn’t, the rigorous way to do it is to isolate the incremental bag-fee revenue, subtract demand and mix impacts, then reconcile to unit revenue, unit cost, and margin progression, while separating one-time items from sustainable run-rate. That is how an industry analyst would pressure-test the story.
The way I see it, some headline balance-sheet indicators worsened for Southwest while peers improved, and the loyalty liability change is heavily influenced by contractual and accounting mechanics. The bag-fee narrative should be really be evaluated through a transparent bridge from policy change to revenue, demand, and margin. Not sure we can derive the same from a single slogan number.
And stepping back from the accounting and into my own recurring theme on this subject, the strategic gap is just as important. In a market where premium cabins drive a disproportionate share of revenue and loyalty economics, a single-class narrowbody model caps yield and limits access to high-value corporate contracts. The legacies monetize first and business class not only through ticket revenue but through loyalty, co-brand card spend, and corporate agreements that are anchored in premium product credibility. Without a true first class cabin that can compete for that customer, Southwest risks structurally under-indexing on revenue per available seat mile over the long run, regardless of how clean or messy any single year’s accounting looks.
The more people here predict the demise of WN, the less I’m willing to cash in my LUV shares after a 65% increase in 8 months. I guess I’ll at least hold them to make the gain long term. [If you saw the size of my LUV portfolio, you’d realize this is not bragging.]
“On bag fees and “a $1.8B EBITDA miss,” I’d be careful, because it does not quite line up with what the filing actually shows”
It does line up Mike Hunt. Let’s make it very simple. Let’s forget about EBITDA because depreciation and interest were basically the same in 2024 and 2025.
The day SW announced bag fees, management said that bag fees would be incremental to earnings by 1.8 billion in 2025. In other words, bag fees would push up earnings by 1.8 billion in 2025.
Now, EBT in 2024 was 598 million and in 2025 was 563 million. Do you see the 1.8 billion improvement anywhere?? Instead of increasing earnings by 1.8 billion in 2025, earnings went down 35 million compared to 2024. EPS is higher not because earnings are higher, but because shares outstanding went down sharply due to huge buybacks.
It’s plain to see. Bag fees were a huge failure because whatever revenue they got from the fees was offset by people stopping flying them. In spite of that fact, they kept buying their own stock (almost 3 billion) knowing this just to pump up their stock to keep Elliot’s pockets happy. So, there’s also dishonesty involved here.
very well said, Mike.
and let’s not forget that WN is “firing” alot of its low value customers that likely booked in advance for deep discounts and then raised fares and pushed yields higher. That will decrease ATL (air traffic liability) by booking less traffic far in advance and more close-in.
It is also far from clear how well WN fared in major competitive markets – but DL and UA both said they saw a stronger fare environment in 4Q2025 than they did earlier in the year. As NK wobbles and B6 cuts capacity, WN is bound to reap some benefit.
With all of the strategic changes that WN is making, it is much harder to isolate the competitive impact to WN.
I do think they will be fine and will be stronger.
There are far too many people that are wedded to the idea of what they are losing w/ WN’s changes rather than focusing on what WN needs to do to be viable.
again, the stock is already moving positively.
and I do believe we will hear about a domestic first class cabin by the summer of 2026. I suspect they had adding one as part of the plan from the beginning but couldn’t get 800 shipsets of first class seats for 3 or more years.
and I also think there will be a widebody order.
@L3 — I’ve been to USVI; I like that Ritz-Carlton on St. Thomas, but, no, never to… *that* island. Yikes. Disgusting. So, you think we’ll see any accountability?
@1990: Dubious.