When activist investor Elliott succeeded in effectively taking control of Southwest Airlines last October, frequent flyers who had come to love the Dallas-based carrier’s refusal to copy the business practices of rival airlines prophesied that the deal would be the death knell for Southwest.
Elliott was determined to rip up Southwest’s decades-old strategy and eliminate all of the things that had made Southwest Airlines, well, Southwest Airlines.
Rather than a unique and quirky airline that attracted loyal fans, Elliott was about to turn Southwest into any other airline. And if Southwest was just like any other hated American airline, Southwest lost its USP – The airline that ‘Luvs’ you.
There are certainly plenty of reasons to feel like Southwest no longer loves its passengers. Since Elliott took the reins, Southwest has eliminated free checked luggage for most customers, introduced Basic Economy, introduced paid seat assignments, watered down its loyalty program, and more.
Once loyal customers vowed a boycott, and the airline has taken a drubbing in the press.
Southwest pressed ahead, seemingly unfazed by the fuss and commotion. Now, it claims the unpopular, but it says necessary, changes are beginning a financial renaissance for the airline.
Announcing its third-quarter results, Southwest boasted that all of the important metrics were “exceeding its expectations.” Record third quarter operating revenues of $6.9 billion resulted in net income of $54 million.
Bob Jordan, Southwest’s chief executive, says the myriad of initiatives it has implemented at breakneck speed in the last 12 months have already started to show positive results.
There’s no doubting that what is happening at Southwest is a once-in-a-lifetime reset – or, as Jordan puts it, “the most significant transformation in Southwest Airlines’ history.”
Everything you thought you knew about Southwest is beginning to change… on the horizon is more international flying, including the potential for long-haul flights, premium airport lounges, and more and more partnerships with other carriers.
As a flight attendant, I’ve seen this exact situation unfold countless times. What’s happening here isn’t just about logistics — it’s a symptom of deeper crew scheduling pressures that airlines rarely talk about publicly.
Customer satisfaction scores have already returned to pre-Elliott levels, suggesting that passengers have short memories or, at the very least, are beginning to see the positive side of Southwest’s strategy shift.
What remains unclear is how many customers Southwest has lost as a result of those changes, or whether they might ever come back. Perhaps it doesn’t matter. Jordan says Southwest is committed to meeting the “evolving needs” of its current and future customers.
That certainly sounds like Southwest isn’t interested in rolling back any of the changes to appease the customers who have gone elsewhere in the last year.
Jordan and the Southwest board are certainly talking up the airline’s performance, although Gary Leff from View From The Wing has a slightly different take on Southwest’s third-quarter results.
Gary goes as far as to say that Southwest held its earnings call in an “alternate reality,” pointing out that when adjusted for inflation, revenue for the third quarter was, in fact, flat. Trying to untangle Southwest’s new revenue streams from lost income sources is difficult at best.
In other words, it’s going to take a little longer to truly assess whether Southwest’s transformation into any other airline has been worth the pain and turmoil.
I think reading Gary’s take is a real eye opener as it “exposes” many of the things glossed over by the earnings call.
View from the Wing has a deeper analysis of what is happening at SWA.