Southwest Airlines is getting rid of open seating model, launches red-eye flights [The Dallas Morning News]
TRIBUNE CONTENT AGENCY 5:09 PM ET 7/25/2024
Symbol Last Price Change |
| LUV | 28.08 | +1.47 (+5.5242%) | | QUOTES AS OF 04:10:00 PM ET 07/25/2024 |
Dallas-based Southwest Airlines(LUV) announced the end of its open seating model, one of the airline’s most high-profile policies.
For over 50 years, Southwest(LUV) has been known for open seats on its aircraft, but now will lean into models for seating like its competitors. According to the airline, Southwest(LUV) conducted research and 8 million simulation-based boarding trials to reach the decision. More detailed information about the company’s changes are expected at Southwest’s investor day in late September.
“It’s clear that the open seating model that served us well for so many years is no longer optimal for today’s customer,” said Bob Jordan, Southwest(LUV) CEO, to shareholders. “I want to stress that this decision was not made lightly.”
Southwest’s research found 80% of its customers and 86% of potential customers prefer an assigned seat. When customers choose a different airline, the open seating policy is the No. 1 reason cited for the change, Southwest(LUV) reported.
Ancillary products related to boarding, like early check-in, generate “just shy of a billion dollars” for Southwest(LUV), Jordan said. The changes to the seating model, he said, is “substantially north of that.”
New seat configurations require Federal Aviation Administration approval, Jordan said, which can take several months. Southwest(LUV) has a fleet of roughly 800 aircraft that will see updates, including the new seat designs and cabin interior announced earlier this year. Jordan said the carrier needs to finish designing the seat layout and then comes the long certification process.
With the new changes, Ryan Green, formerly executive vice president and chief commercial officer, will now serve as executive vice president of commercial transformation to shepherd the rollout.
The airline will also add premium, extended legroom to the cabin. Southwest(LUV) expects roughly one-third of seats across the fleet to offer extended legroom, the same as its narrowbody aircraft competitors.
Jordan also said, despite the changes to seating, he believes Southwest(LUV) can still board passengers with just a single gate agent.
“I’m comfortable that we’re moving towards the customer and that those customer desires will not shift on us,” Jordan said.
Jordan also said financial results for the second quarter were “impacted by both external and internal factors.” Southwest(LUV) had previously lowered its financial expectations for the quarter and reported a $7.4 billion operating revenue for the quarter, a 4.5% increase from the previous year. Unit revenue was slightly better than the company’s previous expectation of up to 4.5% for the quarter, which Southwest(LUV) attributed to the final days of June and “the resulting benefit from incremental bookings from other carrier cancellations.”
Analysts at Melius Research wrote the expectations for the product changes are now “very high” and there is some associated risk as a result.
“We won’t deny the potential of the change underway at Southwest(LUV), but again, change takes time and we still put that turnaround time at 3 years...” researchers wrote.
Southwest (LUV) also announced the addition of red-eye flights. The flights will begin on Valentine’s Day 2025 with five initial nonstop routes: Las Vegas to Baltimore and Orlando; Los Angeles to Baltimore and Nashville; and Phoenix to Baltimore.
Overnight flights at Southwest(LUV) were rumored to begin in the next few years, but were rolled out ahead of expectations. Southwest(LUV) will phase in additional redeye flights in its upcoming schedules as part of its “multi-year transformation to a 24-hour operation,” the airline reported. It expects to provide incremental revenue and cost savings.
The changes come as activist investor Elliott Investment Management has called on Southwest(LUV) to make dramatic alterations to the airline’s business model to generate a return for shareholders.
On Thursday, Elliott published a statement on Southwest’s changes hours after the air carrier discussed its financial results, calling them “more than a decade late.”
“Today, Southwest(LUV) finally conceded that four out of five customers’ preferences went unmet in recent years,” the statement read. “These preferences did not emerge overnight; management simply was not doing its job.”
Elliott has disclosed a $1.9 billion stake in the air carrier and has called on the airline to implement some money-making changes and larger asks like a change in leadership to do right by its shareholders. Despite these pressures, Jordan said he will not step down.
Despite Southwest(LUV) changing the seating policy, it’s not looking to change its two-bags fly-free policy at this time, Jordan said. Jordan said he can’t speculate, but reported that Elliott hasn’t made an effort beyond sending the public letters to the board. Elliott said in Thursday’s statement they’ve been “engaged in direct dialogue” with Southwest’s board.
“So far, they’ve not shown any willingness to engage in any meaningful conversations with us,” Jordan said. |
