We’re mere days away from the end of the second quarter, and Southwest Airlines has filed an SEC 8-K updating its projections of how the quarter will go. Things are bloody.
- Their previous ‘worst case scenario’ was projecting a 3.5% year-over-year drop in revenue per available seat mile.
- That’s bad, and a big part of why Southwest is scrambling to change its business model, for instance considering seat assignments and premium seating.
- But things are worse than they’d previously suggested – a range of down 1.5% – 3.5%. They now say it’ll be down 4% – 4.5%. That’s on increased capacity, where their guidance hasn’t changed. I suppose they can only be thankful for Boeing delivery delays – without which there’d be more capacity and even lower revenue per available seat mile.
- While they aren’t obligated to tell investors earlier that their projects have changed, they’ve clearly known things were worse than they’ve been telling people.
Based on revenue performance to date, the Company now expects second quarter 2024 RASM to decline in the 4.0 percent to 4.5 percent range compared with its prior expectation of a 1.5 percent to 3.5 percent decline, both on a year-over-year basis. The reduction in the Company’s RASM expectations was driven primarily by complexities in adapting its revenue management to current booking patterns in this dynamic environment. Despite lowered expectations, the Company continues to expect an all-time quarterly record for operating revenue in second quarter 2024.
The airline CEO’s job is on the line. Elliott Capital Management has taken a nearly $2 billion stake in the airline and put out a plan for change.
- Change at the executive level. Southwest Airlines management has been slow to adapt to consumer preferences, as Jordan himself acknowledged themselves in their first quarter earnings call .
- Become more like legacy airlines following a model that has failed for JetBlue over the past decade, giving up its competitive differentiation and turning into a money-loser with plummeting stock price.
Elliott highlights a plan for checked bag fees and basic economy, seemingly oblivious that the market continues to value Southwest as a substantial premium over competitors following their proscribed model – like American Airlines and even Delta.
However public company management, while protecting their jobs, doesn’t get to diverge from industry standards while underperforming. That’s the JetBlue lesson – the airline used to offer a truly unique value proposition but when investors became frustrated with their finances management ran to the middle and undercut their performance even further. But it’s harder to criticize and oust management when they’re doing the thing that’s conventional wisdom.
Does Southwest’s SEC filing description of its problem “adapting its revenue management to current booking patterns in this dynamic environment” refer to offering more premium options (as they alluded to in their first quarter earnings call) or basic economy (as Elliott Capital says they also want)? We may have to wait for Southwest’s fall investor update to know for sure.
Time to buy more Southwest stock. This click bait load of garbage is, in itself, a “projection”.
Seems SWA has some similarities to the old PeopleExpress. They fell from low cost industry darling to oblivion much quicker but it’s a similar scenario. The demand for what they offered diminished when other airlines could offer a better product at the same price. Seems like karma for SWA’s “proudly predatory” mantra….it appears that, as their Hawaii money pit demonstrated, there’s a finite limit to how far their so called “SWA effect” can create growth.
I don’t find much “value” in flying SWA anymore and they used to be my favorite airline. However I think a planeful of pick your own seat days has to be numbered. People just don’t want the hassle of jockeying for a seat and the heightened tension on a SW plane these days is enough to make me look elsewhere. But not AA or UA, still not THAT bad!
I purposefully pay more not to have to deal with the BS on Southwest. The wheelchair cattle call, with the miraculous healing at the destination? The seat saving shenanigans? The family boarding fiasco? Having to check in exactly 24hrs in advance or be C30?
Well worth the extra dollars to have a real boarding group leading me to an assigned seat. So much more pleasant.
Their expenses have gone up quite a bit. I’m only using them because of the companion pass because usually their fares are too high unless you book them way ahead of time on a sale.
If they change how they do things they will win some new business but lose other passengers.
Kind of a rough spot which is probably making management think very hard before changing things.
To me the biggest headache is the lack of seat assignments. That should be clear to anyone with all of the articles about saving seats, people faking injuries or severity of disabilities, etc.
Nothing good ever lasts forever.
Got a lot of airline issues considering how many people are flying. AA with its mess, Southwest with its problems. I think United is having load issues.
My guess is that many of these companies were too generous in paying their employees and can’t raise fares high enough to cover those expenses.
Gary,
This might just be the tip of the iceberg as the price sensitive segment starts pulling back. It is over due.
Watch the revenue numbers for other carriers.
Elliot is a predator only out for blood and will, if allowed, destroy and distribute the spoils. Southwest has been through rough times before and have made it through. People out there who are circling for the spoils have no idea of who or what Southwest Airlines is. To suggest that it is time for basic service and premium cabin is ridiculous. That is like saying that they should become as everyone else just because everyone else does it. Really? That is ludicrous since most flights on Southwest are completely full. In addition, I have not heard anyone say how the Southwest balance sheet compares to that the the other carriers. Southwest is and always has been unique and I would hate to see that come to an end. As for seat assignments, well there are and always will be delays usually thanks to weather which so far nobody seems to control. Pay for a seat, your flight is late due to weather and they have given away that seat you paid for and stick you in a middle seat at the rear of the plane. See how much you like it then. Don’t even think it won’t, happened to me on Delta.
Like I’ve said before when I research flights out of SFO Southwest is either higher priced or same price. Who needs the shit show at the gate and boarding. I’ll pay a little more, get upgraded coach seats and free drinks. And I can book those seats months or weeks in advance
@Gary – I haven’t seen much analysis on what the actual problem is, beyond that the business is losing money. Have costs gone up? Fares gone down? Is it a hangover from the holiday 2022 meltdown? I continue to see aggressive Southwest deals in various forms (free temp Companion Pass if flying 2x in X days, ~14% discounts on gift cards at warehouse stores, regular fare sales, etc.) so clearly they’re trying to goose demand. Maybe the problem is spoilage (that planes aren’t as full as they used to be)? Since RASM is down, are fewer people purchasing upsells like improved boarding positions?
Can’t have an informed opinion on what they should do without a decent understanding of the root cause of the situation and its symptoms. Would love to get your thoughts if you have any further insights!
All airlines offer free checked bag with their CC and higher boarding group. Combine that with Basic Economy and you can see why people are leaving Southwest. People who want a cheap way to get somewhere book far out to get the lowest prices so generally don’t change plans negating the BE penalties. If you compare Southwest fares with BE on the other majors with a credit card Southwest no longer seems as compelling. Plus the miles earned with the other majors can help you fly internationally. With the Southwest card the benefits are marginal except for the gamers aiming for the CP. They used to have lower fares due to good or lucky fuel hedging but that’s long gone. I haven’t flown Southwest in years due to lack of assigned seats. I don’t even rate shop them anymore because I refused to deal with the cattle call. If they brought in assigned seating, extra legroom and a credit card that offers those perks they would be on to something. Maybe partner with a foreign airline to allow their miles to be used for international flights. Fixing those issues would be necessary for someone like me to consider them. Until then I will continue flying the other majors.
I’ll also say the increased publicity about boarding cheats isn’t helping them either – I actually think it might be more of an impact than realized.
But overall the boarding process and reliability with no real dollar savings feels like the intolerance of being treated poorly, not really saving money issue the ULCCs face.
Well….at least the F/As and pilots can tell the unemployment office that they had a “best in the industry” contract.
This explains the frequent Costco offers of $500 Southwest gift cards for $430.
Two free checked bags and open seating are distinctives that makes Southwest Southwest. Take either or both of those away, especially two free checked bags, and a lot of customers will be alienated and no longer have a reason to fly Southwest. If Southwest becomes just like the other carriers with fees for checked bags then there will no longer be meaningful competition among air carriers. It will be just be a bad and absolutely horrible.
@American – you dismiss Elliott and others as “not knowing what SW is”. Well what they are isn’t working. Their business is going in the wrong direction so change is needed for their long term survival. You and others (including Gary) may not like it accept reality- the way SW has done things just isn’t working for their bottom line (which is all that really matters)
Y’all are going to extremes with Southwest… here’s what I see happening.
A “BASIC” fare is going to be introduced, which will soon be the lowest fare in the market, and based on capacity (like how Alaska and others do it). The fare will be given D-boarding (joke) and charges for bags.
None of the other fare options will be affected by this, unless Southwest changes Wanna Get Away fares change to just 1 free bag (which, I can also see happening).
Its not a matter of IF this is going to happen – it is. Its WHEN.
For those wondering what Southwest’s problem is, look on page 36 of the Elliott presentation. Southwest has a huge load factor problem vs. their big 3 competitors, and this is new. Southwest went from 2% to 12% of flights under 70% load factor from 2018 to 2023 which indicates they are either chasing routes that are just too thin for them or they have too much frequency on some routes. For comparison the 2018 to 2023 under 70% load factor splits for the big 3 are; AA is at 3%/3%, UAL 2%/1%, and Delta 2%/1%. The public just isn’t buying what Southwest is selling anymore.
It would appear Southwest primary problem is may be that they have run out of airports they can profitably serve in the US over the last 5 years, at least without adding assigned seats which is by far the number one reason people give for not flying them.
What are the latest RASM estimates for the US3 second quarter? How do they compare to WN?
Regarding the free checked bags, how many high-yield pax travel with checked bags in the first place?
I can’t imagine very many business travelers even take advantage of that perk in the first place, especially when the “free bags” are accounted for in generally higher ticket prices.
What was not mentioned is WNs revenue and profit from its Chase partnership. Many airlines make all their profit from just their frequent flyer program. Gary seemed to have omitted this information.
The lack of assigned seating or premium seating is bad enough, but we just had our extra seat cancelled an hour before boarding.
We called and booked an extra seat explaining we needed it for height (one of us is 6’7″ or 200cm)… we get our boarding passes from the ticket counter and proceed to the gate. We’re paged (twice) to the podium and asked why we purchased an extra seat. We are told that height doesn’t qualify as a reason to purchase an extra seat, “only width,” and our extra seat purchase is being cancelled, we were “not the only ones that have tried this before.” “hopefully with A21 you can get the exit row.” She proceeded to claim “no airline allows you to book extra seats” which we quickly corrected her on. She then shut us down with “it’s a safety issue, ie end of discussion. “If we let everyone book an extra seat we’d have problems with weight and balance.” So, just before boarding, we cancelled and had them refund three tickets and went and rebooked with Delta.
We only booked this because the schedule worked best and we’d make the lack of premium seating or seat assignment work with a guaranteed empty middle seat, but this ridiculous policy lost them not only these three seats but any future business.
Southwest is the best in the business hope they dont change anything they will get pass this Im buying more stock in them haters going to hate
Southwest has been my favorite air-ride for decades! I hope you are WRONG about SW changing itself. They are truly the best, just the way they are, and their flight atttendants have always been better than on other airlines, too. They give very personal AND personable service. The customers who gripe about being unable to have an assigned seat are truly low-IQ — I ALWAYS choose the seat I want. ALWAYS. Pay the $15 and choose the seat u want, cheapskates. It’s so incredibly easy to sit where u want. Any serious traveler knows that the best value is on Southwest. I get big bonuses from having the SW Chase card, also. Flying SW is basically a no-stress, friendly experience without nickle-diming.
As a retired Southwest pilot that can travel on Southwest for free with space available, I can say that in the over four years I’ve been retired I haven’t ridden on Southwest once. I buy a first class seat on Delta. The experience and customer service matters. The pilots know the problems and management won’t listen. They always know better. Good luck.
@American “That is ludicrous since most flights on Southwest are completely full.” Bad results with full flights isn’t a good thing. The “keep doing what you’ve always done” montra worked well for Kodak, Blockbusters, Sears, and an endless list of others. I’m guessing you’re not in demand as a business condultant.
Free checked bags mean there are fewer bags in the overhead bins and allows those who are not checking bags to stow their carryon luggage on board. And as Gary has frequently pointed out, the legroom on Southwest exceeds that of economy seat legroom on others airlines.
Available Seat Miles are increasing while Revenue per ASM is decreasing. Southwest add destinations and is only acquiring 175 seat planes since the 143 seat Max 7 is being delayed. An extra 32 seats (22% more) than would be desirable on a route will make it harder to fill every seat and negatively impact RASM.
Chris, spot on and the rest of the other airline, air pilots and flight attendant and crew can mention the same thing…50% raises aren’t sustainable for very long. It’ll be a matter of time before all the airlines file bankruptcy again!
I used to fly Southwest enough to make A-List from when it was introduced until 2022. It was my primary airline, however, only three of those years when I was flying short flights out of MDW for work.
Why was A-List always my backup program? Because they were at that point the only major airline not to impose change fees for regular coach tickets. If a trip was “maybe I will go to San Diego for the weekend…” it was booked on Southwest.
Delta, American, and United loosening rebooking rules for both revenue and award tickets… it really took out a big reason to fly Southwest. Add in open seating (fine for non-stops as an A-List, not acceptable for connections with the risk of IRROPS), and I’m down to spending my last $400 of WN travel credits and writing them off.
On my last two Southwest flights, I’ve had to challenge “seat savers” .
It turned into a game of bluff and counter bluff.
I don’t need this headache!!!
Now, I’ll pay the baggage fee of the legacy carriers just to avoid these shenanigans.