The opening discussion in this week’s Airlines Confidential is about the leadership drama at Southwest Airlines. Andrew Watterson appears out as CEO-in-waiting, with Bob Jordan likely staying on longer than expected.
- Executive Vice President for Operations Justin Jones got made Chief Commercial Officer, reporting directly to CEO Bob Jordan instead of to Andrew Watterson.
- Chief Customer and Brand Officer Tony Roach takes over HR (the People department), reporting to Bob Jordan.
They’re taking operations and commercial functions out from under Andrew Watterson, and they had been placed there initially for greater accountability and stronger execution – now those are the reasons cited for taking them away. As Scott McCartney notes, “When a company tells you this isn’t a change in core values, something big has changed.” And that’s Jordan asserting direct control, bypassing his expected successor (“I think the message from Bob is, I’m staying, likely until Justin or Tony is ready to run the company. And Andrew isn’t going to be CEO of Southwest”).
Jordan had been adamently opposed to all of the changes that the airline ultimately pushed through. He had opposed the pressure campaign by Elliott Management that ultimately led to basic economy, assigned seats, checked bag fees, expiring travel credits and a devalued Rapid Rewards program.
In fact, Jordan had emailed all customers promising that free checked bags were here to stay only to be overruled by his board. CFO Tammy Romo left. Chief Commercial Officer Ryan Green left. Chief Product Officer and Head of Marketing and Loyalty Jonathan Clarkson left, along with countless others. But Jordan stayed – he was clearly interested in remaining CEO, even if under Elliott he was CEO in name only.
So now that Elliott has taken their ownership stake down below 10%, and no longer controls the board, Jordan appears to have shuffled the deck.
In this discussion, board member Rakesh Gangwal who is former US Airways CEO and co-founder of IndiGo and was brought in as a counterweight to Elliott, is portrayed as the real power center at Southwest even though he’s no longer board Chairman. He’s reportedly become Bob Jordan’s trusted voice, and may be driving cost-cutting and executive departures. McCartney suggests that Gangwal wants to be seen as the genius behind the turnaround, and may be minimizing the people who did the hard work.
And with all the changes at the airline, Southwest culture may be changing in a fundamental way — from the layoffs and cost-cutting – which could threaten the airline’s historic competitive advantage, even while the company publicly insists core values remain unchanged.
Both Scott McCartney and Henry Harteveldt conclude that Andrew Watterson should be poached. And that’s right. He’s clearly a competent major airline executive who will be looking to become CEO of his own shop.
We are literally witnessing the rise and fall of Southwest Airlines.
“Jordan had emailed all customers promising that free checked bags were here to stay only to be overruled by his board.” Elliott (mis)Management: “I am the (CEO) now.” (Captain Phillips, 2013).
Any drama at the American Airlines Board meeting on June 10th? Is Robert Isom still the CEO after some employees (union members) voted no confidence and wanted to meet with the Board of Directors?
There’s a CEO seat in Dallas that should be open (it’s not, at least not yet). Watterson wouldn’t even have to move or fly to work.
I don’t really care who runs Southwest, as long as they immediately start moving to install (what I hope will eventually become) a true domestic first class product. It is taking far too long to accomplish, and the airline will pay a very big price in the long run for that.
@Mike Hunt is correct that Southwest is stalled into this purgatory. Either become a direct competitor with the US3 with US3 like products or try to remain in the discounter/LCC/ULCC space, possibly with some modest product differentation.
That being said, to all the armchair airline CEOs that claimed Southwest would fail and fold from moving away from it’s historical business model the current numbers would prove otherwise. But the big numbers lie in paid premium, specifically long haul, a lucrative base for co branded credit cards and ancillary revenue like what AA does with Five Star.
@Mike Hunt — While that would be nice, WN appears to have officially ruled it out to appease the vultures at Elliott, opting instead for a lame compromise: extra-legroom economy seats that keep you stuck in the 3-3 layout. (Please, shoot the messenger. *name-calling inbound*)
Meanwhile, JetBlue is actually delivering true domestic first class with “Mini-Mint” 2-2 Collins Aerospace MiQ recliners. Their first prototype enters service this month, with fleet-wide retrofits hitting starting in August.
@George Romey — You are the ultimate *failing* armchair airline CEO, sir. A 3-3 extra-legroom economy seat is not a “premium product.” As a Concierge Key, you should already know that airlines don’t usually capture the high-yield, co-brand credit card base you’re talking about by offering people a middle seat with four extra inches of space. WN should do recliners or lie-flat, but they won’t. WN’s hype about lounges is also weak (waiting for yet another FOIA requested ‘proof of concept’ or ‘lease application’ from Gary…) Meanwhile, yet again, B6 actually got it done with the Blue House at JFK T5 (and soon BOS). WN is just stuck in no-man’s-land, after ditching their loyal fans by making them pay for bags and seats. Boo-hoo.
Cranky covered this a week or so ago. WN apparently did this right before the Memorial Day holiday undoubtedly to minimize media coverage.
This might well be BoJo taking an opportunity get back at those who cooperated with Elliott but also to recognize what it takes to move WN forward and who has done the best at it. It is hard to believe that Watterson hasn’t contributed mightily to WN’s turnaround.
as for WN’s premium pivot, they have accomplished more change in the past 2 years than any other US airline – and probably any airline in the world – has done in such a short period of time.
They undoubtedly know where they need to go and do believe they will end up as a legacy like carrier not much different than AA, DL or UA – with varying degrees of “achievement” on those premium elements – but the big 3 are not consistent on those elements.
It will take far more time and effort to buy and install 800 shipsets of domestic first class seats and even longer to add widebodies; premium lounges are probably one of the easier things to do and that is why they are coming first.
The real implication is having 4 megacarriers basically chasing the same business model and doing it with the same degree of fervor. If there is not room for successful LCCs and ULCCs, then it will be even harder to support 4 megacarriers all with very similar business models
@Tim Dunn — Pffff… *spitting out my coffee* … “as for WN’s premium pivot, they have accomplished more change in the past 2 years than any other US airline – and probably any airline in the world – has done in such a short period of time.” …Holy hyperbole, Batman!
Tim, they added bag fees, seat assignments, and made their own “Delta Comfort.” Not ground-breaking… at-all.
@Tim Dunn, that you for the genuinely thoughtful analysis — boardroom politics, the mechanics of a premium pivot, and the long-term implications of four mega-carriers converging on the same business model. I’m sorry 1990 responded with a written-out coffee-spitting emoji, a Batman quote, and the intellectual firepower of a guy who just discovered airline Twitter. “tHeY aDdEd bAg fEeS aNd sEaT aSsIgNmEnTs” — yes, 1990, thank you for that stunning rebuttal to a well-informed comment. Nothing cuts through rigorous industry analysis quite like a man who summarizes a strategic overhaul as “not ground-breaking… at-all.” (Note the dramatic ellipsis before “at-all,” Tim. That’s the punctuation of someone who thinks they’ve just delivered a devastating blow.)
@Mike Hunt — I love that. All of it. Please do more.
>He had opposed the pressure campaign by Elliott Management that ultimately led to basic economy, assigned seats, checked bag fees, expiring travel credits and a devalued Rapid Rewards program.
Jordan could make all travel funds non-expiring again if he wants to promote customer retention.
There’s a lot more to offering a premium product than just adding first class seats in a 737. I can’t see SWA ever being a player in that arena.
I have to wonder if Watterson’s downfall all began with his major miscalculation of Hawaii.
Totally baffling that the new management would keep this guy around, much less in a position of power. He has bucked the new initiatives and that should be a recipe for an expedited and unceremonious exit. What gives?
@ 1990
Where are you getting information that SWA has officially ruled out a first-class domestic product or lounges? The reality is very much the opposite.
@Brian — Never said “never,” and not an insider. Publicly available information shows no decision on recliners for now (just speculation, or ‘evaluating options’); only tangible changes are the extra legroom retrofits.
On lounges, I also remain skeptical, though as I alluded to, Gary does find and share occasional lease applications via FOIA requests. Feels very ‘hype’-y to me.
(Meanwhile, B6 actually getting it done…)
Do you have better info? By all means, share away…
@ 1990
I work at SWA and have sat through many nauseating meetings regarding STCs and the like for first class, ovens, and other aircraft modifications. Adding first class is an incredible amount of work, regardless of how many times it has been done at other airlines. I don’t have any firsthand knowledge of lounges, as this isn’t my department. From the rumbling around the watercooler, it seems very likely.
Now I can’t say for certain a timeframe, as these things tend to run long, but further iterations of the SWA product are coming.