I’ve been writing for some time that Southwest has maxed out its business model flying a single aircraft type and without partners.
Sure, they haven’t offered assigned seating or extra legroom seating, first class, meals, seatback entertainment or even functional wifi. And many customers have wanted those things. But they’re still profitable, just not like they used to be. Their biggest problem, though, and what can’t be “fixed” with bag fees or upselling passengers, is that they simply can’t expand like they used to. Their growth prospects aren’t great, so their future profits aren’t orders of magnitude larger than current profits – and so their stock will no longer trade at the multiples that it used to.
- There aren’t as many cities to fly to in the United States and short-haul international that can be reached with a Boeing 737 and with enough passengers to justify a 737.
- They also can’t add as many 737 flights without connecting passengers from small cities, for which a 737 is too much airplane.
Before the pandemic they kicked the tires on Airbus A220s and looked at Embraer E2 regional jets. The E2 has been put off for several years, though demand from Southwest could bring it back.
Mike Boyd says that Southwest is a hub-and-spoke carrier, masquerading as a point-to-point airline. They are connecting more passengers than other large airlines. And they don’t have the right fleet mix for this.
At MDW, HOU, DEN, BNA, PHX, ATL connecting passengers are critical. But with the current 737 fleets, their inability to match capacity more closely to demand in each market is now a major revenue problem.
In fact, an analysis we did a while back indicated that a higher percentage of Delta’s passengers were point to point compared to Southwest. …
Today, the “all 737” strategy is more of a scheduling straitjacket than an operational asset. At Atlanta, they face Delta which has a capacity-flexible fleet that maximizes connectivity efficiency with units from 50-seat CRJ550s to 250+ seat A350s. At Denver, it’s ditto for United. And across all of Southwest’s system, too.
Southwest has offered better customer service in a way that has made it highly operationally efficient. Free checked bags and open seating (while selling early boarding which is essentially seat fees) means that:
- Customers don’t bring as many bags onto the plane, so they board faster
- And they don’t stuff overhead bins, which means less gate checking of bags
- Plus, customers line up in advance and board quickly to grab the best seats
The airline can schedule less time on the ground between flights, and squeeze more flying out of each plane, because they don’t need to spend as much time on boarding and stowing carry-on bags. That means lower costs, because they operate more flights with fewer aircraft.
The airline is giving up its customer-focused and efficiency advantages over competitors, making itself more like those competitors with fees for everything while (1) offering an inferior product [no first class, no lounges, no seat back screens, no standard power outlets, lack of high speed wifi] and (2) without a fleet or route network that can compete for customers, which also means a frequent flyer program that doesn’t offer customers the breadth that attracts high co-brand spend.
In other words, they’re making themselves just like everyone else – but with a less attractive product and less ability to move passengers where they need to go. American, Delta and United can fly bigger planes and fill them with connecting passengers from small cities using smaller aircraft. Southwest can’t and that puts them at a disadvantage even keeping up with 737s. That’s a big reason why United is beating them in Denver, Delta chasing them from Atlanta, and so on.
Enilria posts about a rumor that Southwest Airlines could acquire regional jets. It’s behind a paywall, but hardly a new idea. The question is whether the Elliott Management-appointed board members would be interested in buying new planes. The brief so far has appeared to be to generate free cashflow to fund share buybacks rather than investing to set the airline up for long-term profit.
What a mess Southwest put itself in. Nothing left to do except for Elliott to complete and finish up the job of Roto Rootering every Leader of Southwest at The Palace.( Headquarters) Tear it down and Rebuild it.
Without degrading the effectiveness of Southwest’s all 737 fleet, couldn’t they partner with a regional carrier that already uses smaller Embriar aircraft to fill in the gaps in their network?
All-737 was a strength, not a weakness.
As much as it will indeed harm the workers and us consumers, yeah, at this point, @Dan is onto something. Just end it.
Like @Tim Dunn says, let’s allow Delta to come in, buy it up, merge, whatever, save these poor folks from their misery. Pay off these vultures and parasites at Elliott. Hand out the golden parachutes. End this tragedy before it harms us more.
Hope for the next generation to not make the same mistakes.
There are two groups of ppl who fly SWA that I know: 1) “business ppl” who have top tier status with AA or UA who fly SWA essentially exclusively for intra-California flights. Speed, local airports, lots of frequency. I don’t think that will change. I include myself in that. 2) my “socialist” best friend who loves checking bags, loves the egalitarian vibe of status-quo SWA and has the SWA credit card. My guess is that she is a free agent now, partially out of spite for the changes.
After Southwest bought AirTran, it immediately pulled out of serving HPN, which AirTran had done on routes to Florida using 717s. One could argue a 737 is too much capacity in White Plains, but JetBlue has proven very successful serving Florida from there–now mostly using A220s. If you give people who live in NY’s northern suburbs a choice to fly out of HPN with good fares and not have to shlep to LGA or JFK, it’d be HPN every time .
Similarly, if Southwest had provided well-priced service to MDW, which then would’ve afforded connections to many other places, that could’ve gotten many thumbs up at HPN, especially after UA pulled out and left only AA direct to Chicago albeit at ORD. But if Chicago’s your final stop, MDW could do just fine.
Even though HPN is capacity-controlled (240 passengers per half hour) there may still be room to grow. Whether Southwest wants to go there is a different matter
I hear Air Wisconsin has 50 CRJs avail!
Before the acquisition was finalized by SWA, I took an AirTran flight to SFO in F and then waited for over an hour for my “priority” tagged bags to appear in baggage claim (which was already being handled by SWA ground staff).
Unlike AirTran, SWA, didn’t prioritize or metric bag arrivals for its premium customers and didn’t care to. Never made that mistake again (flying SWA on business).
This is a fantastic article; very thoughtful and well written. Southwest has painted itself into a corner in so many different ways, and it is difficult to understand how the leadership seems not to have seen it coming. It is going to take either some very clever footwork or a merger to make things better.
Adding another type of plane will bring a lot of additional overhead related to pilot & mechanic hiring, training & certification along with increasing parts inventory. Is Elliott willing to spend that kind of money for a long term investment?
How refreshing it is that some “expert” finally admits that, in fact, Southwest is a hub and spoke airline. That narrative has been peddled for decades yet, as noted, they have a lot more connecting passengers than local O&D.
Unless nobody else flies there non stop why on earth would anyone in their right mind choose the new damaged Southwest?
Before a value prop of sometimes fair pricing free bags and unlimited non expiring flight credits made them a reasonable choice
But now high pricing and a legacy model fee assault hel* no
They have the least seat width and most uncomfortable seat I’ve ever sat in and microscopic onboard bathrooms
It’s an easy one.Likely never.I think they are slowly moving towards their death spiral
However maybe they are the next spirit ? A recipe for bankruptcy
It will be sad to see this once decent airline lay off many of their own
Just a matter of when as we eventually enter into the trump recession and the likelihood of a slowdown in travel.
I’m not sure that Elliott has the appetite for another fleet type or that any could be available very quickly.
If I had to make a bet, I would say that the E2 has better chances at WN than the A220 just because of the production capacity of their manufacturers.
The A223 is roughly comparable to the 737-700/MAX 7 and yet WN seems to say they are less interested in
If they really want a smaller aircraft, it would seem to be the E175 class aircraft – but it would be foolish to not buy the E2 model.
WN pilots have seen how much legacy carrier pilots have lost to regional jets so they are not signing any blank checks.
and let’s also remember that both the A220 and E2 jets are powered by Geared Turbofan engines. There is no ability to add a large order of aircraft to either’s books w/o Pratt and Whitney dramatically increasing the number of engine parts it produces since they are still a couple years away from putting the GTF engines behind them.
However, both Airbus and Embraer would move heaven and the underworld to get a large order from WN.
I do think that, if WN can’t get their profits up w/ the strategies they have announced, Elliott will be thinking about carving up or selling in whole the company.
Even w/ regional jets, they still will be short on the premium and international revenue that even B6 has some plans or capability to capture.
I’m not convinced that regional jets are coming for WN…
@Tim Dunn — Psh, there’s no way Elliott pushes to buy new planes–they simply aren’t trying to make this work. Currently, they have their 10% stake, 5 directors on the board, and as an activist investor, they certainly are pushing changes, but not beneficial ones. Besides with tariffs likely, those E2 and/or A220s are gonna cost extra–meanwhile, Boeing is still a wreck. Good luck with all that. Like we were discussing in a related post (and using ‘Delta’ language): their ‘exit strategy’ is either a merger (like Northwest to Delta) or bankruptcy (like PanAm, by an airline like Delta buying assets).
Another thing SWA can’t do (in attempting to be like the other guys) is provide any sort of “meal” that requires a galley. They don’t have them on their planes.
I’ve have 32 flights between LA/PHX the last 9 months, and can’t think of flying anyone other than Southwest. They are as cheap or cheaper than any other quality airline and if I’m flying every week I’m not going to suffer on Frontier. I always get to sit near the front, never have to check a bag, and get off plane quick and to my meetings with little delay. Maybe the answer is to shrink a little and dump their worst performing segments, but I’d hate to see them change anything else like open seating.
There is an argument not to go with regional jets. Regional jets do provide frequent services from small stations but come at a higher cost. If Southwest cannot staff enough pilots for a lower paid Southwest Express, that wouldn’t be good move.
Perhaps Southwest should go the other way and offer Royal Southwest service (international business class) and start a fleet of Boeing 787-9? That could either expand the airline or destroy it.
787-9 service could attack stations that are weaker, such as Italy, Guyana, Nigeria, etc. If they hire cheaper local flight attendants, maybe the Philippines and Malaysia.
@Randy Hill — Whether you live in Los Angeles or Phoenix, you likely have a car, because, unfortunately, there really isn’t great mass transit in either city, or between those major cities, even though there really should be high speed rail there, like a civilized modern country would have (oh, sorry, that’d be g’dam Bolshevism!). Anyway, driving is 5-6 hours, depending on where you start and the traffic between those two cities. But, flying such a short distance really isn’t much better–an hour to get to the airport, 1.5 hours at the airport, 1.5 hour flight, the possibility of delays, and getting out from the arrival airport, you’re really not saving that much time, effort, or money, flying over driving. Is it that you try to get some work or calls in while waiting at the airport or on-board? I’ve done similar analysis between MIA and the Tampa/Orlando areas (they’re working on the Brightline), as well as NYC-BOS/DC, but at least they have the Acela.
First and foremost the pilots would probably raise hell about anything considered a “regional jet” because of hourly wages. Maybe less so with an A220 which is considered a mainline jet.
Also, what about flight attendants? Flight attendants at regionals tend to make less and having two sets of flight attendants would add complexity. Training cost of training flight attendants.
Less operational flexibility. You can’t swap a 738 for an E175 or even an A220.
I would think Southwest would upgage first as some of their routes could likely support more seats.
““business ppl” who have top tier status with AA or UA who fly SWA essentially exclusively for intra-California flights. Speed, local airports, lots of frequency.”
Intra-CA frequency has been halved or more. SFO-LAX is 3x per day, with gaps up to 8 hours. Business travelers aren’t there, so the frequency is no longer there. It’s a death spiral.
@derek — I enjoy your imagination. Royal Southwest! Like, Royal Thai or Brunei, but worse! Since we’re fantasizing here, why not go with all lie-flat, like La Compagnie, but like, do it reeeal inefficient, on a wide-body, why not an a380, go big or go home! They’d never fill it at the price needed to break-even, but who cares! Money is a human construct! Bankruptcy is too! Oh, and I got a rise out of your subtle hierarchical stereotypes in your (hopefully) sarcastic example. Like, yeah, let’s get those ‘poors’ from the ‘s-hole countries’ to work for ‘free’–if they fight back, we’ll just deport them to a random country they weren’t even from to begin with–how about Laos! Bah!
I hope that Elliot Management can defy the unions regarding the Embraer E2s. The E2s are not allowed to be purchased by a US carrier due to the US scope clause, which limits regional aircraft to 76 seats and a maximum take-off weight of 86,000 lbs. A ridiculous reason. With that said Embraer has postponed entry of service for the E2-175 for four years. They are hoping it will be approved by then. I believe that Boeing has lobbied rigorously for this even though they don’t have any aircraft that can compete with the E2 or A220 except perhaps the Max -7.. That hasn’t even been certified and we don’t know if it will be.
I’ve always been surprised Southwest has completely ignored Canada. Seems like there’s plenty of demand for 737s from precelarance cities like Montreal, Toronto, Halifax to their hubs, especially BWI and MDW.
@Corey — That’s a good question. I had read that they didn’t prioritize Canada because high fees at their airports, and also due to the currency conversion, but that’s just silly, because SWA flies to Mexico, too, and they have a different currency. It seems like SWA chose to expand to Hawaii instead, which was good for us as consumers (more competition on those routes).
The Max-7 is perfectly fine for WN. It’s the right size for thinner routes and allows you to manage yields better. I’d argue that WN has too many -800/Max-8 aircraft. Yes th CASM is good, but you are chasing yield at that point…it’s a lot of seats to fill. The bigger planes are fine for “hub to hub” flights, but the majority of flights would be fine with the Max-7.
@Corey. First of all, the Canadian market is retrenching due to geopolitical issues. Second, WN doesn’t do a great job at international flying and foreign currencies. They would fail miserably.
Maybe nsx and I can fly to Canada on Southwest for a DO in October for a weekend? Unfortunately, October may be too soon since the airline doesn’t fly to Canada.
Southwest also had their fingerprints all over the 737MAX fiasco as well. I think they were one one primary airlines that insisted that Boeing produce not only a new 737 model, but one that would require zero pilot training or retraining. This lead to the ill fated decision by Boeing to squeeze out another update to the ancient 737 air frame, and also to the MCAS software that would enable the MAX to handle like the older versions of the plane. Boeing should have had the guts to tell Southwest that the 737 had reached a dead end, but alas they did not.
Ironically, now that they have the 737 MAX that they insisted on, they may be unable to survive flying that model of plane only.
@Joseph —> 3) students who are flying to and from college and can’t afford to fly anything else, but can’t stand being nickled-and-dimed to death by Spirit, Frontier and/or Allegiant.
Been saying this since the beginning. Private equity has ruined another differentiated product by making it the same but worse as everything else.