Southwest Airlines used to have a clear idea of who they were. They had a theory of the business. They did things differently than the rest of the industry to offer inexpensive and friendly service to the customer, flying mostly out of inexpensive airports and using a single plane type in order to keep costs down. They would fly short flights that brought people off the roads and into the skies.
That’s all changed. They now have basic economy fares, expiring flight credits and charge for checked bags. They’re going to be charging for seats assignments, and selling extra legroom seats. They’ll have boarding groups instead of lining everyone up. And they’ve devalued their points.
Southwest’s CEO Bob Jordan, though, spoke at the Bernstein Strategic Decisions Conference and claimed that what they’re doing is low risk precisely because everyone else does it, too.
[T]here is low risk because we’re putting in things that the industry has done forever. So there’s low risk implementation, there’s low risk in the financial benefit paying-off.
To be clear, there’s little risk to embattled executives when they copy everyone else. It’s not their plan that’s wrong, it’s factors outside their control.
But there’s tremendous risk to Southwest to eliminate their unique selling proposition, which was precisely that they were different, to copy financial underperformers like American Airlines and JetBlue.
Jordan, though, says he’s not done. He’s going to chase whatever the customer wants, instead of advancing a theory of the customer and how to best meet their needs. And that could mean a true first class, it could mean flying long haul. With Southwest Heart dead, there is no longer a True North at the company.
[W]e aren’t stopping here. So putting in the things that I’ve described isn’t the end of the journey for Southwest. We will continue to pursue the consumer. And if the consumer wants other types of premium, they want us to fly other long-haul destinations, which could lead to aircraft questions. I’m totally making all this up. This is not a plan. But the consumer demand in certain cities for us for a lounge is super high. My point is rather than say, no Southwest Airlines does not do that. You must follow the consumer or if you are forever vulnerable to others that can offer that to the consumer.
…even there in Nashville and in Austin as an example, people love us, but we also can’t — for many of our folks that love Southwest, we can’t do things that — we can’t provide products that you want like a first class, we can’t get you to long-haul international destinations. If a lounge is important to you, we don’t have a lounge. I’m not predicting any of those things. What I’m telling you is rather than be forever vulnerable, we’re going to follow the consumer and what the consumer needs.
The key takeaway here shouldn’t be ‘Southwest Airlines is considering first class, widebody aircraft, and long haul flying.’ Instead it should be Southwest has no idea who they are, and no way to evaluate competing ideas anymore.
The truth is that Southwest’s old model has likely gone as far as it could. After racking up 47 straight years of profits, even through 9/11 and the Great Recession with low costs, a simple operation and customer-friendly policies, they’re:
- No longer a low cost carrier. They don’t have the Gary Kelly fuel hedges anymore and have expensive contracts with pilots, flight attendants and other work groups. Headquarters staff grew.
- Lacking long haul flying and partnerships. Southwest takes you to the biggest domestic markets but can’t sell tickets to Europe or other worldwide destinations that customers want to fly. And they don’t benefit from the tickets foreign airlines are selling to their customers. A passenger from Asia can’t land in Los Angeles and transfer on the same ticket to a Southwest flight, or from Europe in New York. That’s a lot of business lost.
- Not serving small markets bringing connecting feed to their larger planes. With nothing smaller than a Boeing 737 they can’t serve the markets that other airlines reach with regional jets. Those passengers then can’t flow through the rest of Southwest’s route network.
- Missing premium products. Customers have increasingly wanted more room and other conveniences, and Southwest hasn’t had anything to offer those passengers. This also cashes out in fewer high income customers than legacy airline peers (less desirable credit card). And they still don’t have this – they’re adding extra legroom seats but aren’t even planning to sell blocked middle seats.
- Failing to market flights to the customer. Southwest had largely sold tickets through their own channels only. They didn’t sell where so many customers were at online travel agencies. That meant they sold most of their tickets to locals in cities that had strong Southwest brand awareness, and knew to go to their website, but not as many in smaller markets they flew to. Instead of an even balance of passengers on both ends of a route, Southwest was missing customers in those smaller markets.
This meant customers didn’t directly compare prices, which was great since Southwest generally doesn’t offer the lowest fares… but they also didn’t sell restrictive basic economy tickets and they included free checked bags with every fare.
Once the Biden administration rule requiring fares be shown comparing all-in costs with various fees got struck down in the courts, Southwest’s only path to being price-competitive reaching customers beyond their own channels was to price like everyone else.
Southwest had a great model until it wasn’t one anymore. They couldn’t keep growing without changes, and won’t ever return to their historic lower costs. They needed to abandon simplicity for growth, but that complexity means greater costs too.
That means Southwest was never going to be Southwest again, even with employees who largely don’t hate their jobs. Covid accelerated changes in the market. Activist investor Elliott Management complained that Southwest management had been slow to adapt, which was true. But no one has solutions and so we’ve just gotten a rush to aping the policies and practices of less successful airlines in a rush to protect phony baloney jobs, while selling aircraft and delivery slots and in some cases leasing them back in order to fund share buybacks – which have failed to give them the hoped-for boost.
Once I use up my travel funds I’ll treat them as a option like all the rest.
They can say whatever they want.
Herb has got to be unhappy. They are destroying what he built.
Southwest is done. It’ll be acquired by either American or United. They had a fantastic marketable product and now the “new guys” are going to destroy it.
I used to fly them everywhere but now . . . never again.
“What I’m telling you is rather than be forever vulnerable, we’re going to follow the consumer and what the consumer needs.” – No, sorry Bob. You’re going to do exactly what Elliott tells you to do, and do it when told. Customers are of no importance. Customers want “Transfarency” – something Southwest spent decades promoting. Customers want flight credits that don’t expire in six months. Customers don’t want devalued loyalty points. And some customers want open seating, others don’t care, few will not fly SW because of it. Oh, and customers would like flights at BWI to be on time.
“ He’s going to chase whatever the customer wants, instead of advancing a theory of the customer and how to best meet their needs.”
Your customers don’t want to pay for seat assignment or baggage. That’s what set you apart from many of the rest-at least the goods ones anyway.
How are you now different than Spirit…?
“Southwest has no idea who they are, and no way to evaluate competing ideas anymore.”
I thought that you were supposed to try to stay ahead of the customer. This sounds like running behind them shouting “Me too! Me too!” Doesn’t sound like a winning plan to me.
@JamesThurber
UA is going with B6. American has HA/AS. Southwest and United/American overlap the most. Southwest would most likely -partner- with Delta, and if WN ever did get acquired it would be by Delta. Directly causing Delta to be the largest carrier in Texas via HOU, DAL, SAT, and AUS. And, largest carrier, by far, in the world. Though, that’s not going to happen any time soon or ever.
I do wish Delta would do a hostile takeover of AUS exploiting Southwest’s weak position and make it a hub once the new terminal is complete.
This is exactly what happens when private equity takes control
Adios SWA
Southwest was too arrogant to evolve. They focused on a niche experience and acted like they were invincible. Now they lost their way.
If SWA wanted to thrive doing what other airlines do, they would have bought or leased widebody airplanes and started making profitable international flights. Then they would have enough money coming in to do the rest of their changes. As it is, they don’t offer enough to cover the increased cost to the paying passenger. Nobody wants to pay for luggage or seats or food. Passengers pay for those things if they see enough value in them.
Bob is clueless and completely misses the point is that he’s perpetually last in everything, adds zero to the value proposition and has always led a reactive strategy that has cost SWA billions. He’d make a great CEO of a 1980s cable company (or what’s left of it).
Let the selling of assets commence…
As a former near 17 year Southwest Airlines employee it was at one time a great company to work for but Leadership and Management with Southwest Airlines has hit Rock Bottom. A Waart greeter hired 1-1-25 would be a Station Manager -6-1-25 would be a Station Manager in Denver prrsent dsy.
Congratulations, Southwest. You’ve forced me back to flying United again. Which I won’t forgive anytime soon…
Buh bye LUV. I am sure some will miss you, where the door didn’t hit you.
Not sure any of this really matters in the long run. There are only 6 large US domestic carriers. Most destinations only have a subset serving them. With minimal competition and fairly full flights, the average coach passenger simply opts for the lowest fair they see.
Apparently WN thinks the best way to win is to be like everyone else. We’ll see how that works out for them in an undifferentiated domestic aviation industry that has allowed itself to become commoditized. The long, slow slide will continue.
Let. Them. Fail.
Does this mean no more wild turkey whiskey on all flights?
Notice how they have started charging for bags but the lowest basic fare is still at WGA pricing (which had two checked bags baked in). They’ve not adjusted the pricing and so are not only still at high fares (PHX to Vegas above $100 each way!)… But even higher if you are checking bags. Cash grab and profit at the expense of consumer ignorance …not sustainable but I’m sure they will beat the drum on qtrly earnings in the short term til that dries up
I loved Southwest for what they used to be. didn’t even check other airlines for domestic travel unless I had to. I feel totally left out. I really thought they knew their customer….obviously not. Let them sink.
I haven’t noticed particularly low prices at Southwest for years. Last time I checked one route, they were more expensive.
Yes, as a former Southwest only guy, using AA and other airlines that have better flight times. SWA now has become just another airlines with fewer options. No longer competitively priced.
American and JetBlue will probably absorb the fleeing Southwest passengers this Fall. Spirit and Frontier will get a few here and there too. Good for those airlines since they are struggling.
Yeah they are just an overpriced option now. I’m gonna check out the United matching status thing.
Nope, no more Southwest for me. Alaska had competitive fares with SW from Seattle to LA. I flew Southwest for the free luggage. I am handicapped and travel with a lot. Now, I will fly Alaska. They have better service now too.
Years ago, SWA wrecked their industry-leading frequent flyer program by reducing the value of their points. Instead of a complimentary flight for every 8 purchased flights, it now takes about 12 purchases to qualify for a complimentary flight. It was a huge loss in point value to me and angered me enough to book more with Delta than SW.
But, when Delta started charging for last minute changes, I reluctantly found myself flying SW more and more to avoid those fees. But then, unbelievably, SW eliminated non-stop flights to all of my destinations. That ended my loyalty to SW. I’ve flown another million miles or so since then, but I split my business between Delta and SW.
I fly enough on both airlines that I don’t get charged for bags, so SWA’s new policy doesn’t affect me. But assigned seating or paying extra for a particular seat is where I will draw the line. If SW takes away that last remaining difference between SW and everybody else, then I can’t justify giving them even one more penny.
RIP southwest. Biggest mistake was letting Elliot Management Company come in and pretty much take over. Once again Bob Jordan, you are just a puppet, just like when you were under Gary. No employees like you Bob Jordan. Atleast, no front-line employees. But nobody cares about the opinions of the front line employees, as usual….Southwest is truly dead indeed. But hey, let’s see how the summer traffic is…who knows…still doesn’t matter, the company culture died with Herb. And that’s that..
As a former CoHeart I am so glad I do not work for this company anymore. Inflight management was not the best or the nicest and several coworkers were not helpful either.
That meltdown during the holidays still haunts me.
Buh Bye Southwest Airlines!
The Business plan of Southwest has always been when Hetb passed the torch to Gary Kelly and now Bob Jordan. THROW SHIZNIT AT THE WALL AND SEE WHAT STICKS. WHEN THAT SHIZNIT FALLS OFF THE EALL THEN TOSS MORE.
For years, on the routes that I frequently fly, Southwest has been much more expensive such that I often forgot to even check their schedule and pricing. I rarely check a bag, so I assume that the “free bag” was built into the price. Then, I had the privilege of logging in 24 hours ahead of the flight so I could then get a good position standing at the gate awaiting being allowed to board so that I could get an unassigned seat which is, at least, comfortable.
Criticism is fine, but none of what I’ve seen here is constructive criticism. Given their cost structures and consumer preferences, exactly what model should they follow in order to run an efficient, safe, and profitable airline??
I have already replaced my Southwest card. It was always Southwest first for me since 2005 I flew enough I earned a Companion Pass almost every year. Now that Southwest is like everyone else I will treat them like everyone else.
Hearing all this “Southwest is dead” talk from people whose economic reasoning I do not trust makes me want to buy their stock. So take note, LUV is $33.35 right now.
Flyers want all kinds of things most of which will drive an airline right into bankruptcy. Maybe the ULCC and LCC business model do not work in today’s environment in the US. Filling planes doesn’t equate into profits, filling planes in a strategic way does. It’s doubtful Southwest could have remained the same but it’s also suspect on whether they can compete as a global airline.
Gary, you make it seem like “it’s Southwest’s fault,” like this was all the only outcome, basically to justify Eliot’s actions in their hostile takeover.
Had they not come in, I think Southwest could have re-oriented their ship towards consistent profitability. The fuel was killing them, that advantage ran out, and yes they can be limited by only using 737s but it can also be an advantage. They needed to make technology upgrades years ago… That is what really started sinking them, a la the winter holiday meltdown of 2023.
They needed to focus on their core and building up more business from large bases like BWI, MDW, and DEN.
Eliot doesn’t really care what happens to them, in fact they probably want them to fail and maybe they are actively trying to hasten the demise so they can get the pieces after it’s an broken up.
And yet…………….THEIR PLANES ARE ALWAYS FULL. If they didn’t have the “product” people wanted, they wouldn’t be.
@Lane – Their planes are always full but they are underperforming their peers. Not all market share is good market share.
I used to fly SW exclusively for the things they are getting rid of. I guess the other airlines will also get my business.
I guess nobody has looked into just how Elliott has done in the past to Companies they have invaded. They have a great record of destruction. However, GK apparently did not think to insure they were on top of the Fuel Hedging as a means of controlling costs. But then again he did not think to upgrade the Tech as a means of saving money either.
When he was alive, Herb always said that every single Customer flying on Southwest Airlines, was a valued Customer. And he valued them equally, none more than the other. Southwest had their loyal Customers who wanted open seating and free checked bags, and they were always vocal about those things. Kelly basically told those customers they did not matter. He made promises never kept. He should have been a Politician.
Another thing Herb said frequently, we know you have a choice when you fly, Thank You for flying Southwest and we appreciate your business.
I flew Southwest two weeks ago, Coast to Coast, on planes that were full except for one leg with one open seat. Not all changes are good changes and Elliott, who is really in charge, are making the most destructive changes with a purpose.
So sad to see the once great disruptor fall so far and become obsolete because greedy investors decided profits were more important than people. Here’s hoping they lose big on this one.
All things pass…
All those abandoned inner city airports that Southwest reopened in the 70s will be once again abandoned. They will move to the bigger airports with their widebody and long haul jets. It was a great experiment and it worked wonderfully for 47 years. Too bad industry can’t survive in a sustainable way but always has to grow. Some things are perfect as they are and don’t need to grow. When animals outgrow their environment they die.
This is a take over special designed to window dress the company in preparation for sale. Nothing more, nothing less. This is why they are intentionally making the airline look like everyone else. They are opening the door to more outside bidders. In contrast, if they succeed, they can more easily buy out a competitor. All this will be accomplished at the cost of the Southwest customer.
First off, Jordan is just a front man for the clowns who now run Southwest. “Rudderless” is an excellent description., Look at who is really calling the shots. A guy who ran a low-ball airline in India. Maybe they need bring in Doug Parker to see if he can screw them up as badly as he did America to get them ready for one of the legacy carriers to buy them.
This is plainly the flailing of a rudderless leadership team, grasping at straws as Southwest veers away from its core identity in a misguided attempt to be everything to everyone, ultimately serving no one well. Its inevitable demise in the absence of meaningful corrective action will be a profound loss for consumers, further entrenching the already dysfunctional oligopoly that defines the U.S. domestic airline industry.
The pitch sounds so cynical.
I’ve had to use large sewer snakes several times through the years. What is strange is days after the event everything smells sewer like. SWA is venturing into the sewer of all airlines smell the same. It will be hard to evolve back out if they choose and smell different.
SWA should paint the airplanes purple, have a First Class section, assigned seating, serve a light meal, milk chocolates, Muse Mints and free checked bags…oh, and change the name to TranStar Airlines. Hold on, didn’t they already try that with some “redundant” airline parts and people that SWA bought out.