The “heart” of Southwest Airlines died today, with the company’s first layoffs in corporate history.
They did these via videochat, not in person, banning everyone from headquarters. And the messaging isn’t “we’re in an existential fight for our lives” it’s “we’re not optimizing financial performance.” The narrative here is terrible.
And while the organization is top-heavy, they probably didn’t need to do this?
- They already have a hiring freeze. Natural attrition gets them to these numbers in 12-18 months.
- So it’s not a recurring $300 million in savings, it’s a one-time pull-forward of the savings.
Was that worth it? Now everyone is looking over their shoulder. As one employee puts it to me,
I’m not convinced this is the end of the layoffs, and even though my team was not affected, this company is going to be very different going forward, and not in a good way.
They no longer run on Southwest Heart. Southwest had changes it needed to make. It probably maxed out its business model (one plane type, domestic and short haul, no partnerships and little product differentiation). Changing that entails costs, but consumer preference changes were accelerated by the pandemic. All inevitable stuff, and Southwest didn’t react quickly enough.
But none of that means that aping JetBlue but not as nice, or American, is a great financial strategy. Remember that Southwest shares haven’t appreciated since Elliott invested, or hit a 10% stake. The company capitulated, even announced plans to sell planes and lever up its balance sheet to fund buybacks, and that hasn’t helped. (The literature on buybacks is clear that there’s not much of an appreciable long-term bump to share price – at best it is modest and short-lived, benefiting those selling into the trading window.)
Bottom-line seems to be that what has made Southwest special is mostly behind us. And these layoffs are one sacrifice Bob Jordan is making to try to keep his own job.
“Let them eat cake”
This may begin with Southwest, but it doesn’t end with them. More layoffs are coming for this and all industries. And we have the least compassionate leaders imaginable right now. The people better wake up. Fast.
Two things that is coming out of the Elliott raid, the currrent top management did not have a commitment to their pre-existing model and/or they are spineless, clinging on to their sinecures as Elliott manages remotely.
None of them have stayed and said that the existing strategy was the right one. Fire me.
The feeling on the frontlines is one of “good let the bloat go” but also heartbreak.
@Anonymous — Ah, yes, the lack of solidarity is so helpful. The leopards won’t eat MY face. Who determines who is ‘bloat’ and not is more telling. It’s rarely ‘performance’—friends pick friends. Good, productive people are let go, regardless. Let’s not sugarcoat it.
What do you expect from Elliott ? Slash and burn the workforce, sell the assets and lease them back and eventually they file for bankruptcy after being crushed in debt at the next downturn while the officers receive 7 figure bonuses to go along and Elliot buys more penthouses with some of their their management fees. What is the value added by Elliott?
RIP Southwest- it was fun for 50 years and now it’s just the same as the rest.
spot on 1990…a lot of jobs are going away…don’t think the many people losing jobs now will want to do all the work that the “illegal” Immigrants where doing for us, I’m expecting some serious disruptions in the food chain.The trickle down effect of the wholesale slashing of jobs and increased cost to small businesses the tariffs and loss of Manuel laborers are creating may play into the hands of the large corporations but I’m afraid a lot of middle America is about to suffer….. big time.
Bob Jordan is the bloat. He was captain of the ship un 2022 during the worst it meltdown in aviation history. Yet he still managed to collect a $1M bonus and 4 million in stock awards. In 2023 he collected a $4M bonus and another 4 million in stock awards. Can’t wait to see is 2024 compensation. During this time and despite record revenues, the company is barely turning a profit and this piece of shit doesn’t once offer to give any money back. And he somehow still believes that he’s the right person to turn this ship around.
I’m with 1990. I don’t think the WN playoffs are over, either. I’ve been through that at another airline. I hope my friends over at WN are planning for the worst while hoping for the best.
Herb is rolling over in his grave. Never, EVER would he have don’t such a thing to his employees.
Company was at a tipping point. Something had to change to survive long term.
No one knows if this is a good fix, time will tell.
With vulture equity firms around, it’s never good to have a lot of capital around. That leaves a lot of money for the vulture equity firms to extract from the company to enrich the equity firms. Once they are done, they can exit their position before the next recession makes the more highly leveraged airline to not have enough assets to mortgage to survive the recession.
RIP Southwest
This is a difficult day but the heart of Southwest was not about not laying off employees.
They will be fine. Just fine.
Their business model was maxed out, and didn’t keep with the times and changes in demand.
It’s going to take some time to roll out and generate excitement over the new product.
Let’s hope they come out stronger with a compelling product that people want to pay for rather than avoid. If that happens, they’ll grow and be able to get these roles back.
Herb is rolling……
*a 40+ year SWA loyalist
Joseph Schumpeter phone your office.
Seeing that cheesy picture of Bob Jordan reminds me to throw away my old Sears catalogs from the late 1970s with those horrible, ill-fitting suits…
Tim
Hasn’t your English teacher told you that double negatives are a no-no?
@JohnW
“Manuel laborers”……I see what you did there.
Companies have layoffs all the time. This is no bleeding heart situation. I’ve been CEO of 5 tech companies. After years, fat builds up that you need to trim. It is just the reality of running businesses. This is not some kind of sob story, this is a company doing what it needs to do to maximize profits. Companies are not charities. They are for profit entities that have a fiduciary responsibility to investors. Stop all the whining people.
SWA’s way of doing business is obsolete in this day and age. The low cost carrier way is bad news and doesn’t work due to many factors. There will be furloughs coming to other departments in the near future in my opinion.
The big three US carriers American, Delta, and United are doing well and are financially strong. They have a way better product/service and eminities. I typically fly American Airlines and I enjoy their service and products offered in different aircraft like their 777, 787, and newer more modern aircraft. To me it is more professional and Southwest going to assigned seating is a smart business move.
If they don’t change then it’s RIP Southwest. I can see the writing on the wall.
Jon F,
yep.
which is precisely why I do it.
WN is not in any threat.
They will not be negatively impacted.
.
I don’t think people realize how business decisions are made. Layoffs are done to make sure the vast majority keep their jobs. Excess must be cut in order to be lean. To wait 18 months could be disastrous for the entire company. To take something off the table because you haven’t ever done it in the past is illogical. Business decisions sometimes are tough no doubt but are necessary for the health of the overall company.
Cry me a river. One layoff isn’t a defining moment that changes the entire company culture, that’s ridiculous. Natural attrition means the bad employees stay, the good employees leave. Terrible strategy. One round of deep cuts is the way to do it. They probably didn’t go far enough.
Spare us the drama! Every company in America lays off people when times are rough. This entitlement mentality that you’re owed a cushy job until retirement and you can’t be fired is the problem! Welcome to the real world of America. Southwest needs to adapt to the new market realities and it will be fine. The fundamental issue is that they charge full service carrier prices but their product, with all the niceties and idiosyncrasies, simply does not match.
Meh, the Southwest of the HK era hasn’t existed in probably 20 years. It has been a different airline since it outgrew the ability to execute its business model down the line. Now it’s faced with having to make changes as it navigates down a treacherous new course in hopes of survival and prosperity. Will it survive, long term? Who knows. But it likely dies a slow death if it stays on the current path.
Drastic changes are uncomfortable, and can be down right ugly at first, though necessary. The same is true for the health of the country.
The cattle car approach from a customer perspective is long dead! I prefer to get an assigned seat, pay for better treatment, and the joke writer attendants need to go away!
As for the planes,,, they are a good brand, with a history of good performance over the history of its life.
Bob Jordan will be ” Retiring ” I predict by June of this year. Terrible run company with Terrible Leadership. Most of the blame goes to Gary Kelly and the rest to Bob Jordan and his Corporate Stooges. The Palace ( Southwest Headquarters needs to be Roto Rootered by Elliott & Vanguard. Arrogance & Conceit did them in.
Gary – consistent share repurchases do seem to consistent to higher stock prices. I would take a look at Hilton’s stock price chart over 10 years as an example. Unfortunately Southwest’s repurchases won’t be consistent
Share buybacks often coincide with firms that produce significant free cashflow above what they can profitably invest, and those firms may see rising stock price over time, but the literature on buybacks themselves is clear that there may be a temporary and very modest bump in share price from the increased demand for purchases of the stock – but it is fleeting.
Haven’t flown SW in 40 yrs. I’m not going to pay extra $$ to ck in early or upgrade to A1 – A15 so I can still push and shove and run just to get a basic economy seat closer to the front of the plane. I’ve disliked their business plan from the beginning.
I may give them a try when assigned seating kicks in. Add 1st class seating, at a competitive price, and I may become a regular customer. Until then AA . Don’t even fly Jet Blue
or Alaska anymore.
I’m a Southwest employee who, along with my entire team or people who have worked there from 2 to 10 years we part of the layoff. Those who think they know Southwest, but are just passengers, don’t really understand what has happened here. Executive leadership set back too long trying to coast with the “if it isn’t broken, don’t fix it mentality” and then learned that they were sinking in profits while all the other airlines were starting to make more money than they were. This is evidence by waiting too long to update infrastructure and software systems. The current executive leadership with the exception of their CIO is visionless, and frankly, a little spineless. Their CIO has tried to transform the company for the last several years while almost all the other executives and middle management fought her the entire time. Southwest will never recover from this. They are never going to be the same company again.
One lay off in over 50 years – compare that to every other airline or company!!!! And SWA has been top heavy since Gary Kelly took over! Time to take it back to when Herb ran Southwest. Growing pains Are inevitable and SWA has had theirs, that’s for sure, but they have done it better than any other airline.
I’m sure any employee at SWA that’s been there 15 years or more still has the heart and the Southwest Way and they wont allow People with NO work ethics to ruin their company into the ground – seems like everyone wants something for nothing anymore. Or everyone with a negative comment or attitude thinks they can control things.
My brother was less than a week away from his 30th Anniversary and he was laid off. Who does that? Greedy corporate leaders who want to preserve their own job, that’s who.
It has been reported that cutting the 1750 jobs will save the company $510 million over two years. That means the average job cut will save the company almost $150,000 a year. Of course, all of that is not payroll compensation. Social security tax and any benefits have to be considered as part of the total.
agree with Gary on buybacks. Obviously reducing the # of shares outstanding will increase the price in the short term, but it also says that that company lacks any viable growth opportunities to invest in their core business, so long term prospects not outstanding.
Elliott’s off-the-wall demand that SWA abandon its signature free-seating approach and adopt a mediocre business model like every other airline will lose more customers than gain any new ones. There are too many entitled, misbehaving people flying, and it’s too difficult to avoid them with assigned seating, which is a haphazard lottery. Being able to pick your own seat makes it much easier to make less risky choices about who you have to sit next to for what may be several hours.
When financial metrics become more important than your employees, a company has hit an inflection point showing upper management has run out of ideas on how to grow the company. A very natural progression in capitalism. Only companies with amazing management continually find ways to grow or accelerate revenue over the long term.
I would like to get assigned seating again. I don’t like traveling on the same plane all day without being able to sit with my husband. A few times someone will trade with me but most of the time, I’m just alone. I like the pleasant flight attendants. I just want assigned seating w/hubby!!
Uncle Jeff sums it up well. WN is no longer the scrappy upstart with a different way of doing things. They are now an established carrier with all of the issues the majors have faced for years: rising labor costs, the need for modernization, the need to keep up with/surpass the competition, etc. Add to this that they didn’t keep up with changing passenger tastes (i.e., no reserved seats, no premium offering, no lounge options, ending the bothersome boarding bingo cattle lineup, no international codeshare/FF options), and they are now trying to play catch-up and doing it in a half-posteriored (sic) way.
“The company will never recover.”?
That’s the whole point. The old company had no future.