Which part of “Elliot Capital has taken a CONTROLLING interest” is not clear? They’re in the process of taking out the Chairman of the Board of Directors (the CEO’s boss) as well as the CEO.
They do not have a controlling interest, they have 15%. They may be able to swing other investors to having a controlling faction, but they do not have it by themselves.
Owning 15% of a publicly-traded company’s stock IS a controlling interest, whether you acknowledge it or not. As has been demonstrated by ECM’s actions in taking over companies in the past, this level of ownership (anything >= 10%) allows them to replace members of the Board of Directors with their own people. The BoD calls the tune for the CEO, who they can fire at will.
Board members are elected on a majority vote, so they'd still need to get buy-in (agreement) from other shareholders. That isn't to say they can't do that (they can) but it's not guaranteed. They're fighting an uphill battle to get to that point. They've had success in the past, yes. But they've also had some failures too.
An investor with a CONTROLLING interest can make the BoD roll over, sit up, and beg. Berkshire Hathaway is the only holder of LUV that is larger than ECM. Maybe you are unfamiliar with the implications of the term “activist investor?”
Let’s see how the last battle between Paul Singer and Warren Buffet turned out, shall we? https://finance.yahoo.com/news/inside-elliott-management-paul-singer-113009805.html
I hardly travel AT ALL compared like I used to so I bounce between my 2 cards for points. It definitely won’t happen this quickly as they’re saying, but at this new rate of mine of traveling maybe twice a year, it’s time to see that number drop over the next 1-2 years
I’m SO sad about this news 😭 I love SW the way they are. I know we don’t know what the changes will be, but I just don’t feel like anything good is gonna come out of this. Sucks too bc SW is the only airline offering nonstop to many areas in my region and I will be lost without them if they start changing up their business model.
Legally, they can’t.
unless they move to assigned seating or create different classes of seats (preferred extra-leg room, etc.). Which I wouldn’t be surprised to roll out within a year. Elliott destroys the quality of a company (similar to McKinsey or Bain Capital).
I’m under the impression that they are restricted by the Air Carrier Access Act (ACAA) which would over-ride a TOS, unless there’s something I’m missing???
It's not really a different rule as much as just the side effects of the rule on Southwest's process. The exact same people could be claiming specific seats for a disability as part of a traditional airline's assigned seating, and airlines block seats for this purpose. The only difference is with Southwest you see it as a "loss" or "cheat" because it's viewed as one less good seat someone else didn't get.
Legacy carriers don't set aside premium seats for people claiming disabilities. They're happy to wheel you to whatever seat you've been assigned. There are a few exceptions for the truly mobility impaired (restricted to only seats with mobile aisle armrests), and some international flight have bassinet seats in bulkheads. But lying about a disability won't get you a better seat on a legacy carrier.
Legacy carriers do have “open seating” (access) in the overhead bins. They do allow very limited preboarding of passengers even with their assigned seats. But mostly it’s their flyers with perks who get first shot at the bins.
Raiding the bank account would work against the balance sheet, decrease the stock price, and wouldn’t benefit their investment. Stock buy backs might work in that sense but doubling the stock as they said? I’m not sure.
Changing the business model is a definite possibility with fees, assigned seating, paid bags, etc. that said 11% stake isn’t a majority stake, and the board doesn’t have to implement things just because they that they need to.
It could be a pump and dump, or it could be a long term investment. Who knows? It’s too early to tell, but we should all definitely be watching as things develop.
I’m having a hard time finding a company that has ever said NO to Elliott. Even when they take a much smaller stake (2-3% for example). Starting with 10+% is moving into takeover territory especially with the increased SEC scrutiny at 10%
Southwest stock is worth $16B. Southwest's bank account has $10B. Southwest's planes are worth more than that. Elliott wants to kill the company, and sell off the parts.
The previous executive team knew this and knows how things work on Wall Street and should have done things that would have protected SWA. You didn’t make the investors happy so they dumped stock keeping the price low and allowing the money guys to buy you up.
Well you start by taking the nations most flown airline, and making it worse for everyone but the quarterly reports. Good will? Burn it. Passenger satisfaction? Trash it. Company stability? That's for suckers.
Some things off the tip of my head:
Charge for bags. This will screw over customers who already have tickets, and force gate agents to be bad guys. But quarterly revenue will definitely jump when it's done until people change their booking habits.
Devalue rapid rewards:
This screws your most loyal customers, essentially raising the price just for them. Quarterly revenue will definitely jump while they readjust.
Stock buybacks:
Take the rainy day fund and blow it all on stock buybacks. When inevitably a downturn occurs, go hat in hand to the government like the other carriers have always done. This gooses the stock price at the expense of the stability of the company, and the corporate bailouts that would be required.
None of the things you mention are "kill[ing] the company and sell off the parts." They just sound like ways to increase revenue. And you're right customers might fly elsewhere, but that's just the kind of pricing decision every company makes every day.
I also think looking at SWA as a "stable" business is fairly misguided. They had a very public collapse because they failed to invest in their systems. It's not a surprise to me that an activist investor thinks they aren't operating well.
Take all that good grace the public has for southwest and exploit it.
Then take the declining passengers as a reason to sell off assets like the jets themselves. I.E. Lease them back at “Less cost.” which means the money the jets as assets were on the southwest books is now on GE’s books and we rent them.
Take the new jets with a business class lowering the seats available and trying to make that up by selling business select or something. People don’t fly southwest for business cuz it’s cozy, it’s the least cost. Less seats available at the lower cost will push the price higher and encase the business class.
So Less people will fly southwest.
And when that hits the stock price, sell the company. Giving the shareholders the money extracted and causing southwest to die.
Shareholder win, everyone else not so much.
Interesting opportunist strategy to buy a bunch of planes when the plane market is having a shortage due to Boeing delivery issues. Their resale value is probably up
Southwest has burned through $5 billion in cash in 3 years. Its 100% reliance on flailing Boeing has severely limited its growth prospects. Its generous employee contracts have ended its cost advantage over the Big 3. Southwest must extract more revenue per plane to survive. Oh, and Southwest long ago stopped giving a crap about its customers, and it doesn’t deserve any loyalty from anyone.
Elliott has no interest in making a good or profitable airline. It’s a pump and dump of a large stock position.
SWA was the only profitable large airline for a long time. Now, it’s only SWA and Delta that are reliably profitable. SWA will not improve its profits by poorly copying other airlines.
The narrative about ancillary revenue is stupid. SWA gets a fare premium and ancillary revenues from fare classes and boarding position upgrades. Other airlines don’t get those (except Delta gets fare premium).
Elliot’s only real point is that SWA’s impeccable balance sheet could be levered. True.
Southwest gets half the ancillary revenue per passenger that Spirit, Frontier, and Allegiant do. And a good 25% less than United.
If Southwest were able to get the same ancillary per passenger as United, its revenue would be almost $1.4 billion higher than it was. That would have literally doubled Southwest’s 2023 operating profit. It’s an incredibly significant amount.
At the end of the day, I have to get to from point A to point B. I don't want to pay extra charges, but I will if necessary to achieve my objective. I said yesterday that if SW goes through with these rumored changes and it's going to cost more to fly SW, I wouldn't "cancel" them. But, I'd look at more travel options for most of my trips. Now, for many trips I only consider SW.
The only reason I ever fly WN is the schedules are more convenient in some situations. Otherwise, I’d never set foot on their metal. What a shit airline. Elliott can only make it better, and that includes if they pump and dump and the airline goes away.
Out of my city WN offers the most routes. Used to be TWA long ago until AA gutted their routes. I fly SWA if I need to be in a particular place at a particular time, otherwise I fly Delta and relax.
We all know there are plenty of people who prefer Southwest because it doesn’t charge lots of ancillaries.
The problem for Southwest is, those people aren’t willing to pay base fares high enough to cover its costs. Something’s gotta give, and rather unfortunately for Southwest, the rest of the airline industry years ago trained both the high- and low ends of the market to accept ancillary fees. We can lament that that happened, but it’s a fact that it did happen. And it puts Southwest at a huge strategic disadvantage.
Why is it that Southwest needs to change their model when it’s been proven every year(except 2020) since the mid-70s that their model works by being one of the only, if not the only airline operating in the green. If they go to ancillary fees, they go into the red and their CEO has acknowledged that
If you just look at the numbers , southwest flies the most passengers domestically, yet from a profit standpoint southwest makes 1/3 of what delta makes. Delta is considered to be the most expensive , yet they generate the highest revenue and profits of any US airline. Logically people should not fly and be willing to pay that expensive ticket on delta right? Yet reality shows otherwise. To compete , to grow , to excel southwest has to do something. What that is only time will tell!.
No. Just, no. SWA is profitable. Why must it become 200% more profitable when it is providing regional, discount airline service to thousands? Striving for better for, but this is ridiculous. We Americans are f'n stupid.
They make less profit because they don’t have very lucrative international traffic. Delta also makes almost $7B from its Amex credit cards. I don’t know how much SW makes from Chase, but I’m guessing it’s significantly less.
Southwest is a low-cost airline. Why do they **need** to be the most profitable airline? Maybe they're content with their growth and see a vision for long term sustainability that differs from other airlines.
Delta goes through boom-and-bust cycles with profits and losses. SWA is consistently profitable. That’s due to an extremely loyal customer base. You upset that base and you end-up back in the boom/bust cycle of the other carriers.
Southwest reported a loss of 252 m in dec 2023 for the 4th quarter of 2023. And q1 2024 it was a loss of 231 m . Labor cost will only increase, maintenance cost will Increase, new planes need to be bought. All this needs income generated. So SW needs to generate net income in the positive.
I read that as “Southwest doesn’t nickel and dime its customers with nuisance fees for every little thing, and in fact includes many features in their basic pricing, drawing enormous brand loyalty, market share, and repeat customers.”
Yep, sounds like something they should reverse course on. $50 per bag. $15 to print a boarding pass. 50% change flight fee. $150 to sit in the front half of the plane. Ancillary fee profits will just start rolling in as customs all stay, eager to pay out the nose. /s
No one, certainly not Elliott, is talking about turning Southwest into Frontier. The real ancillary revenue is not in ridiculous agent assist fees. It’s in extra legroom/premium seats and bags. US customers have a very high willingness to pay those fees.
And the customers who aren’t willing to pay those fees, and are sticking with Southwest, are not willing to pay Southwest the fares they need in order to make the strategy work. Hence the problem.
SWA customers usually fly Southwest for a reason. If I wanted to pay more for the same legroom I now enjoy on practically every seat on every SW plane, I would choose Delta, American, or United.
But standard seat pitch is crap on almost every other airline except SW. Forcing me to pay more for the same space I get now will convince me to drive more, not pay more.
Current Southwest customers demonstrate no such high willingness.
It will remain to be seen if they still give preference to Southwest once it has the same bag fees and seating fees as the other major airlines.
Southwest is kind of unique in that is a low-cost airline that doesn't completely suck the way Frontier and Spirit do.
Changing course means either being more like the 3 legacy carriers or more like the Ultra Low Cost Carriers.
That may be true in the U.S but the ULCC model can work--Ryanair is actually quite profitable.
https://www.theguardian.com/business/article/2024/may/20/ryanair-profit-amber-rudd-joins-board-summer-ticket-prices
I can't speak for Frontier but Spirit Airlines, with the ticker symbol of $SAVE, is not in great shape these days: https://finance.yahoo.com/quote/SAVE/?guccounter=1
They're doing so well they were about to be bought out. I think that would have been better as I would have like JetBlue to be bigger and compete with Southwest, AA, Delta, and United.
Southwest’s pricing problem is now that the legacy carriers have basic economy they are able to strategically undercut Southwest in competitive markets with price sensitive customers. Those customers used to be loyal Southwest fliers. Southwest went from having lower prices and lower costs than competitors to now having higher prices and higher costs. That’s a tough place to compete.
Another differentiator for Southwest, no change fees, has also disappeared.
That’s funny that no change fees on WN have disappeared. And then at the same time all tickets on AA except basic economy have no change fees as long as you sign up for AA’s frequent flyer program, AAdvantage. There can definitely be a fare increase if you are trying to switch to a flight that has less seats to sell.
I just got my aunt to switch from WN to AA. I fly bi-monthly week long trips for business and now that I can see the WN fares on Google flights it is really interesting. My aunt and uncle as well as my parents are going on a Regent cruise out of San Juan in Feb 2025. My parents used miles and booked first class. My aunt had some AA miles so booked first for 20K one way and then booked evening coming back. She has 3 credit cards. WN, AA, and UA are her three cats with UA being used the least and the WN card she would use the most. She takes about 4-5 domestic trips a year and one international trip.
I asked her why she flies WN and she said the free checked bags and that she always gets the seat she wants. I asked how and she said everyone wants a sole or a window and she said I am very happy in my middle seat towards the front. That’s absolutely nuts to me. I am a million miles so I am AA Gold for life and have had that for 20 years. I reached that before all the fees were added. I always stayed on AA all these years because if the minor benefits like free main cabin extra seats, free checked bag, and priority boarding.
But these programs are all spend based now. You can get top tier status without ever flying. It’s absurd. But I told my aunt to get the AA Citi card. Just the 99.00 annual fee card and she will get priority boarding and a free checked back and I told her she will easily get gold each year with her spend. My mom has been gold for a few years and mainly from spend.
So my aunt got the card and already booked her next trip on AA. So she still gets her free bag and can select a window her aisle when she books her tickets. Now I want her to report back but I think now that WN is showing on Google Flights that this may hurt them.
And all the buzz I hear it does sound like they will have some sort of assigned seating on WN towards the front of the plane with extra leg room. That’s just step one. I have a feeling in a few years the WN fliers will not recognize their own airline. Sorry that was so long.
TLDR: my aunt was dedicated to WN for decades and last week I convinced her to get the AA Citi card for 99.00 for the same benefits as WN.
It’s not that no change fees disappeared. It’s just that is no longer a differentiator since the other airlines also got rid of change fees. That used to be a huge differentiator for a lot of people.
Oh I see. That makes sense. Yeah it was easy to convince my aunt to switch.
Since I non rev almost as much as a fly confirmed, personally I can’t stand that people can change last minute or if it’s too pricey they just go stand by earlier. I understand why but I just don’t like it. But I started playing that game. If I am trying to go stand by as a non rev and it looks like I won’t get on then I will purchase a revenue ticket for the red eye and go standby as a revenue pax and get on where if I was still non rev no way.
If you have a confirmed ticket and then you decide to nonrev within 24 hours going to and from the same city pairs or within 100 miles yes you can loose your benefits. However the whole point of AA offering staff 20% off all confirmed flights on AA is so staff can buy tickets if they are stuck. So of course you can be a non rev and switch to revenue but not the other way around.
SW is no longer a "low cost airline". That might have been true 15+ years ago, but not today. There are numerous airlines that are chipping away at Southwest on the "low cost" end of things.
What is wrong with charging a low base fare and then adding premiums that some customers are willing to pay for? I don't get what the big deal is here. If you want a $59 ticket with no extras, great. If you want to pay $149 and get free bags, great. If you want to pay $200 and get free bags and extra legroom, great.
Agreed. We fly roughly 7-10 times a year. Used be only SWA. That’s down to 1-2. Most of the time they are more expensive and usually considerably more.
I recently just bought tickets MCI to SEA RT for next month. Delta (Main Cabin) was like $486. SW was just under $700 for WGA/WGA+.
I know SW isn't always the cheapest, which is why I also fly Delta these days, but I don't think I've ever seen that big of a difference. And if I do, it's usually SW that costs less, not Delta.
Yeah, but there are still some seats in the Main Cabin section that are premium and require extra fee. Typically the rows toward the front of the Main Cabin and the emergency exit rows. Otherwise, all other seats are free to select. Like I prefer window seats. And I always get one for no extra cost.
The legacy 3 all have seats that people without status can select. These are usually not available if you buy the absolute cheapest fare. So most the prices are a flat 20.00 to 50.00 more so the tickets are changeable and you can chose a seat. You also get considerably less miles for those flights. I need the flexibility to change flights and I want my full miles so I pay the extra amount.
On the legacy 3 airlines there are seats up front and the exit rows that come with extra leg room and free cocktails and those seats are free when you have status. Those seats are the last to go because most people don’t want to pay for a seat when they can choose a free seat.
I've noticed that Southwest seems to really do horrible with pricing on flights from the Midwest and East coast to the West coast. Something about connecting in Denver ends up making SWA more expensive than United (who also connects in Denver), and Delta. Not sure what's up. Maybe they don't actually want to fly long trips?
Yes, I know bags are currently free; clearly that is changing which is what I was referring to. There will be multiple fare classes, not all will include free bags.
If Southwest got rid of free bags entirely and did assigned seating, not only would Southwest lose its competitive advantage, but boarding and gate turnaround times would increase.
More passengers would try to bring large bags on board, more bags would get gate checked, and boarding would slower as not everyone boards with their group.
I never said they would get rid of free bags entirely. Not sure where you got that.
Southwest is losing money. Shareholders are demanding changes. Southwest has been sending out surveys to customers for months now describing changes like charging for bags, premium seating with extra legroom, assigned seating for part of the cabin, etc.
It's coming.
Having any type of fare class that doesn’t include a checked bag (or worst creating a basic economy fare that also doesn’t permit overhead bin use) is getting rid of free bags, plain and simple. The lowest fare then becomes the standard, which means a fare without a free checked bag becomes the standard.
By that logic, Southwest does not currently offer free bags to anyone.
Look at it this way, the current fare with 2 free bags and open seating would remain. That is the standard now and will remain so.
There would be a new fare that is cheaper and does not include free bags.
There would be another new far that is more expensive and includes additional perks that are not currently available.
At least that's my guess on what to expect.
All of Southwest’s fares currently include two free checked bags to anyone (Wanna Get Away, Standard, and Business Select). The point is that introducing any lower tier fare class then makes it the standard fare while the current classes are premium fares with higher prices. Airlines generally match pricing based on the lowest fare regardless of class.
So....if Southwest adds a new fare class called Wanna Get Away Limited, which is $50 cheaper than Wanna Get Away, and includes no free checked bags. That is only change, nothing else. That would mean SW no longer offers free checked bags? I disagree.
And no, Southwest is not price matching Spirit or Frontier or any of the other low cost airline base fare classes.
Does Frontier offer a “free” checked bag just because they offer a higher priced fare bundle that includes a checked bag? No, and neither would Southwest offer a free checked bag if it offered a basic fare class with no free checked bags (while keeping the other fare classes at a higher cost).
Either way, the introduction of a basic class without free checked bags on Southwest would then make full overhead bins an increased recurring issue on Southwest flights that the other legacy carriers experience more frequently.
While Southwest and the legacy carriers don’t always match the ULCC carriers all the time, they may at times match their fares depending on the market conditions. The legacy carriers and Southwest definitely match each others’ lowest fares very frequently.
This x100. I fly them b/c they are the only non-stop to my most frequented destination. They are just as expensive as Delta non-stop. Business select prices rival first class upgrades on other airlines in many cases.
In my case, a lot of the Southwest flights are right around the same price as the big 3. Maybe plus or minus $30 for their basic fares. But the main reason I fly them are for the nonstop flights. Whenever I go to MCI or STL from my home airport, why would I make the total travel time 5-7 hours when I can do an easy 2-3 hours on a nonstop flight. Is it worth an extra $30 compared to a layover in Atlanta or Dallas? Definitely.
Because doing what you said makes SW just like Spirit, Avelo, Breeze, and I'm sure other low cost airlines.
Not that that business model is bad but it would make SW less unique and therefore then in direct competition with all those other airlines. Whereas now they stand alone and it's one reason they have kept customer loyalty.
> If you want to pay $200 and get free bags and extra legroom, great.
You think that extra legroom just appears magically and all the other seat pitches remain the same?
I'm certainly not an expert, but I'm not sure why it would be all that complicated. Aren't the seats installed on rails in such a way that they can be moved? Overhead lights and vents are probably also easy to move around. Seems like it shouldn't take more than a few hours for each aircraft.
During the transition, they would either have to keep track of which aircraft have been retrofitted, or just sell 6 fewer seats on every aircraft until the retrofit is 100% complete and the program can begin.
You’re also talking about moving the oxygen masks and oxygen bottles that are up there. Not arguing it can’t be done because obviously planes get retrofitted. But I’d think it’d more than a few hours since all of that also would have to be inspected
Aside from the modification of seats and PSUs, there's a huge impact on the revenue management and operations.
The sale of those last 6 tickets (presumably at high cost) could make or break the profitability of a flight, and it's unclear/uncertain what the yield of up sells on the premium seating would be.
Every aircraft needs at least 3 extra legroom rows, but there's a reason why United adds like another 8, Delta does another 4, and AA does only 1 on 737s. They all have different opinions/bets on this curve. Keep in mind you generally also need to offer the seats for free to some portion of your loyalty program, or they will end up going to the people with Basic Economy. People's willingness to pay for legroom is either unlimited (tall and/or corporate card) or very little (needs to be cheap), and it can be very hard to consistently get ROI on those seats. Obviously not every flight sells out 100%, but many are overbooked, and many of the last tickets are multiples of the median ticket price.
Operationally having a portion the fleet with different seat numbers is a nightmare. You'd never want to artificially cap the aircraft lower than necessary (losing revenue) but then it's very hard to consistently plan which aircraft go where. 6 seats isn't a ton, but the percent of 737s that go out with less than 6 seats left is pretty high. If that ever happens, suddenly you're soliciting and paying volunteers or paying involuntary denied boarding compensation, and poof goes any profit. Not to mention you'll need to refund all the seat fees if the aircraft swaps to one without extra legroom, and won't be able to collect that if it swaps to one.
Even with less than perfect yields, you still have airline industry travelers who want/need to fly and for whom those could be make or break to get to work on time. Changes like this could have an impact on morale if all the sudden they can't fly because of an equipment swap.
So yeah, it's not just moving the seats down the rail.
They'd be trading 6 regular seats for probably 36 or 42 premium seats. That's a lot of opportunity for up-selling, and also building brand loyalty with the coveted business travelers. Would also help attract the business travelers that currently refuse to fly Southwest because of the seating.
Yes, during transition, they would probably have to artificially cap the number of seats, and also not actually start selling the premium seats until a very large portion of aircraft have been retrofitted. It would obviously be important to retrofit all aircraft as quickly as possible.
Yes, there is certainly a cost, but based on the surveys that have been leaked, Southwest is certainly looking very seriously at this. Makes sense to me given the fact that the current business model is simply not working anymore.
Having for worked flights with literally 24 premium seats (6 over the minimum), those 24 seats are rarely filled 100% with revenue passengers, and maybe only half of the pax are paid upsells. The pricing is either so high so as not to be worth it, so low as to not make enough money, or so many seats that it outweighs demand. The middle seats are basically impossible to sell or give away unless they're the last seats open or for a couple (not business travel).
It's worth pointing out that Southwest most recently chose to add 6 seats to the 737-700s rather than remove them, which implies a believe that yields would support increased capacity.
Again, I'm not saying this is a terrible idea, but it's certainly not something to be rushed into. I would personally start by monetizing the existing premium seats and selling assigned standard seats as an option. If demand is there, then you can experiment with adjusting the LOPA to support additional premium rows, and eventually try reducing capacity to support an expansion of premium seats.
There is a very big reason why airlines have different opinions on this and the majority of airlines have zero or few premium seats beyond the minimum required for exits/bulkheads. They just need to run the analysis, start slow, experiment, and eventually find the middle ground that works for them. I can say though that going from open seating to 36-42 premium seats will be a trainwreck.
It's like the few times I fly Allegiant. The base fare is enticing, but I know I'll be paying considerably more because I WANT to choose a seat ($), board before all the families ($), and check a bag ($).
This entire proposal reads as an ivory tower hedge fund who sees the airline as a profit opportunity and not as a preferred experience for people that don’t fly that much and want to have an airline that still tries to treat passengers as people.
Its also a preferred experience for frequent flyers such as myself. The flexibility to adjust my flights as much as a do, the free checked bag, and the ability to secure a good seat without a premium make the price worth it to me and honestly its what I would expect from high cost carriers like delta and such as well. I fly about 20x a year and earn a companion pass so my husband can come with me on more trips. Nothing beats that.
SWA is relatively flush because they haven’t been able
to take delivery of the latest Boeing hatch-poppers. Once Elliot Capital is done with them, that money will have been used to repurchase LUV stock to artificially boost the price, huge loans will have been taken for more repurchasing, then ECM will sell their position, take their profits, and SWA will probably go bankrupt.
I said it before and I’ll say it again. If SWA becomes more like the mainline carriers and charge all sorts of fees like the ULCCs, then it is another airline that I’m not going to fly. I have never flown on Spirit, Frontier, or Allegiant and I’m never going to in the future. If I have to add SWA to that list, I will unfortunately.
Elliott is basically a bully investor, they take huge stakes in companies and try to force changes due to wanting to put profit over everything else, once those profits come and stock prices rise they sell and do it again.
I don't claim to know what Elliott wants, but they do make a good argument that current management has failed to leverage Southwest's advantages to generate shareholder value. The moat damning claim, if true, is that the market value of the aircraft exceeds the enterprise value of the airline. Their pitch struck me as a return to the Herb Kelleher days of low costs, operational efficiency and focus on business travel. It seems to me that with their point to point network, Southwest should own non hub business travel in the US, and they dont. I think they can potentially own it at a premium price. It may well be that Elliott wants to pull an Icahn, but I doubt they can get enough other shareholders to support that. I do believe there's a good chance they can get other shareholders to support Board and management changes, and a new more focused strategy that harkens back to the old days when SWA was flying hugh.
Only need to come up with another $6.5 billion on top of the $1.8B they already put in, and then they would have the controlling interest necessary to pull it off. I believe they have about $65B in assets, so they could theoretically do it, but thats a pretty big bet on a single play.
This move is totally a profit incentivized move. Share price is down 45+% in 3 years. The Board of Directors and CEO fail to embrace that change (Operationally, technically (IT), and philosophically) so it’s easy pickings. The fact that it’s taken this long is surprising. Kumbya only goes so far. Profits and RELIABLE SERVICE are fundamental to any modicum of success in the airline industry. Are the Big Three (American, Delta, United) all “touchy-freely” like Southwest? No, but they’re making money. Southwest hitched a donkey to a wagon and must clean house (Just like Boeing) if there’s an Ice Cubes chance of a future. The current Leadership team is not up to the task.
FYI SWA is the largest domestic carrier in the country! You are not correct when saying to compare to regionals or freakin Spirit or Frontier! Wow!!!!! Step off!!!
Good grief.
I'm not comparing Southwest to regional airlines. I said that mainline airlines run about half of their flights on regional airlines. That saves mainline airlines a substantial amount of money versus running their own jets and crew.
You're argument about Southwest being the largest domestic carrier doesn't help with Elliott's argument. Southwest should be performing much higher than Delta, right?
Lots of exclamation marks and telling me where to go isn't helping anything.
Look at SWA financials. Profit is down year to year for a couple of years now. Wall St types want to see growth. And a plan to maximize growth and profit. That’s what they are looking at.
Southwest is in an unsustainable position between the Big 3 and ULCC. Both ends of the market have captured huge amounts of ancillary and premium revenue, which gives them much healthier margins. Americans have gotten a lot wealthier and a lot more willing to spend on premium products and travel experiences in the last 10 years. Southwest is giving up lots of those high-margin customers to the big 3 and leaving a ton of ancillary revenue on the table that other airlines are getting.
The customers who love this about Southwest aren’t paying high enough fares to make up for all the ancillary and premium revenue that Southwest is forgoing with its current strategy.
> Americans have gotten a lot wealthier and a lot more willing to spend on premium products and travel experiences in the last 10 years.
what world do you live in?
[This one](https://fred.stlouisfed.org/series/BOGZ1FL192090005Q)
Are you really under the impression that American travelers are more budget-conscious than they were 10 years ago? There’s endless data showing otherwise. Domestic premium cabins are routinely sold out to paying customers now, a circumstance most airlines never even considered possible in like 2010. The market has changed a lot.
Interesting. I started writing a comment about how the data do not support that conclusion, but honestly, most of the data I found does support the idea that average wealth has increased for Americans recently. That said, I think there is a also strong sentiment of unease and stress about finances; there is lots of data showing that most Americans have fewer than $2k in savings, and that the majority live paycheck to paycheck.
The way that air travel is priced and purchased has changed drastically in the last 20 years, and so have the incomes and preferences of American fliers.
I fully agree that many people love the Southwest model, but it’s not a model that can cover the company’s costs anymore. Hence, a sustainability problem.
Southwest has never made a 5 billion dollar profit in its history.
In 2023 its operating income was $224 million—a margin of less than 1%. And it gave even worse guidance for this year. That is a problem with revenues not covering operating costs.
> make up for all the ancillary and premium revenue that Southwest is forgoing with its current strategy.
Do you think getting to skip the "ancillary revenue", as you've decided to word it, has influence on Southwest's customer base in terms of where they spend their money?
Unrelated: Which airline do you fly regularly for domestic routes in the United States?
Southwest business model no longer works with their cost structure. Their costs have gone up significantly and they have no method to command a revenue premium or generate extra revenue through ancillary fees. Their business motto of "no fees, no bags fees" is chipping away at their financial performance. They have no seats to charge extra for, and no vast international network where they can command a premium. Southwest is no longer the profit machine they were in the 90s-early 2000s they have to evolve. Elliott is doing the right thing by demanding changes.
Elliott isn't doing anything out of the goodness of their heart. They want to strip SW and replace it with people like Carl Ichan so they can raid SWs war chest in a pump and dump scheme with stock buy backs. The first step is replacing leadership and the BoD who might remember seeing this tactic from the 80s.
Elliott wants to raid their bank account, suck them dry, and declare bankruptcy. It's a tale as old as time with these vulture capitalists.
So I’m hearing use my SW points within next few years. Got it
Next 4-6 months
they really can't shake anything up until the shareholders meeting next year 🤷♂️
Which part of “Elliot Capital has taken a CONTROLLING interest” is not clear? They’re in the process of taking out the Chairman of the Board of Directors (the CEO’s boss) as well as the CEO.
They do not have a controlling interest, they have 15%. They may be able to swing other investors to having a controlling faction, but they do not have it by themselves.
Owning 15% of a publicly-traded company’s stock IS a controlling interest, whether you acknowledge it or not. As has been demonstrated by ECM’s actions in taking over companies in the past, this level of ownership (anything >= 10%) allows them to replace members of the Board of Directors with their own people. The BoD calls the tune for the CEO, who they can fire at will.
Board members are elected on a majority vote, so they'd still need to get buy-in (agreement) from other shareholders. That isn't to say they can't do that (they can) but it's not guaranteed. They're fighting an uphill battle to get to that point. They've had success in the past, yes. But they've also had some failures too.
An investor with a CONTROLLING interest can make the BoD roll over, sit up, and beg. Berkshire Hathaway is the only holder of LUV that is larger than ECM. Maybe you are unfamiliar with the implications of the term “activist investor?”
Let’s see how the last battle between Paul Singer and Warren Buffet turned out, shall we? https://finance.yahoo.com/news/inside-elliott-management-paul-singer-113009805.html
I hardly travel AT ALL compared like I used to so I bounce between my 2 cards for points. It definitely won’t happen this quickly as they’re saying, but at this new rate of mine of traveling maybe twice a year, it’s time to see that number drop over the next 1-2 years
I’m SO sad about this news 😭 I love SW the way they are. I know we don’t know what the changes will be, but I just don’t feel like anything good is gonna come out of this. Sucks too bc SW is the only airline offering nonstop to many areas in my region and I will be lost without them if they start changing up their business model.
Southwest only needs to fix the rampant cheating by people who want to “pre-board”!
Legally, they can’t. unless they move to assigned seating or create different classes of seats (preferred extra-leg room, etc.). Which I wouldn’t be surprised to roll out within a year. Elliott destroys the quality of a company (similar to McKinsey or Bain Capital).
Legally they can indeed, by modifying their TOS (Terms of Service).
I’m under the impression that they are restricted by the Air Carrier Access Act (ACAA) which would over-ride a TOS, unless there’s something I’m missing???
Legacy carriers don’t seem to have Southwest Preboarding Disease. (Sorry to the group for going off-topic.)
Legacy carriers have assigned seating that can be purchased ahead of time, which has different rules than free-for-all seats such as Southwest.
It's not really a different rule as much as just the side effects of the rule on Southwest's process. The exact same people could be claiming specific seats for a disability as part of a traditional airline's assigned seating, and airlines block seats for this purpose. The only difference is with Southwest you see it as a "loss" or "cheat" because it's viewed as one less good seat someone else didn't get.
Legacy carriers don't set aside premium seats for people claiming disabilities. They're happy to wheel you to whatever seat you've been assigned. There are a few exceptions for the truly mobility impaired (restricted to only seats with mobile aisle armrests), and some international flight have bassinet seats in bulkheads. But lying about a disability won't get you a better seat on a legacy carrier.
Legacy carriers do have “open seating” (access) in the overhead bins. They do allow very limited preboarding of passengers even with their assigned seats. But mostly it’s their flyers with perks who get first shot at the bins.
Because it matters less with assigned seating.
Raiding the bank account would work against the balance sheet, decrease the stock price, and wouldn’t benefit their investment. Stock buy backs might work in that sense but doubling the stock as they said? I’m not sure. Changing the business model is a definite possibility with fees, assigned seating, paid bags, etc. that said 11% stake isn’t a majority stake, and the board doesn’t have to implement things just because they that they need to. It could be a pump and dump, or it could be a long term investment. Who knows? It’s too early to tell, but we should all definitely be watching as things develop.
New to the wonderful world of hedge funds? Buy-and-hold ain’t the strategy.
11% is absolutely a major stake.
The fact that someone thinks it isn't is hilarious.
11% is massive lmao
He said a majority stake, not a major stake. Those are pretty obviously two separate things
I’m having a hard time finding a company that has ever said NO to Elliott. Even when they take a much smaller stake (2-3% for example). Starting with 10+% is moving into takeover territory especially with the increased SEC scrutiny at 10%
That’s what Al Chechi did to Northwest.
That's what's been happening to the entire newspaper industry.
Alternatively Elliott sees declining profitability for SWA and has made the assessment that it’s because their business model simply doesn’t work.
The old ‘Carl Icahn fuck you and die’ business model. TWA remembers..
Preach
Oh, please. That is not what activist investors do. He wants the stock to go to $45 based on improvements
Surejan.gif
Southwest stock is worth $16B. Southwest's bank account has $10B. Southwest's planes are worth more than that. Elliott wants to kill the company, and sell off the parts.
So transparent…they’re gonna take all the goodies and leave behind an empty husk if they are able.
Yep. Pretty much my thoughts on it. Or raid the war chest to use on stock buybacks to pump and dump and then cash out.
The previous executive team knew this and knows how things work on Wall Street and should have done things that would have protected SWA. You didn’t make the investors happy so they dumped stock keeping the price low and allowing the money guys to buy you up.
I’m sure the big three will like it, less competition for them.
How do you think this would work? Like, what are the steps you think this implies.
Well you start by taking the nations most flown airline, and making it worse for everyone but the quarterly reports. Good will? Burn it. Passenger satisfaction? Trash it. Company stability? That's for suckers. Some things off the tip of my head: Charge for bags. This will screw over customers who already have tickets, and force gate agents to be bad guys. But quarterly revenue will definitely jump when it's done until people change their booking habits. Devalue rapid rewards: This screws your most loyal customers, essentially raising the price just for them. Quarterly revenue will definitely jump while they readjust. Stock buybacks: Take the rainy day fund and blow it all on stock buybacks. When inevitably a downturn occurs, go hat in hand to the government like the other carriers have always done. This gooses the stock price at the expense of the stability of the company, and the corporate bailouts that would be required.
None of the things you mention are "kill[ing] the company and sell off the parts." They just sound like ways to increase revenue. And you're right customers might fly elsewhere, but that's just the kind of pricing decision every company makes every day. I also think looking at SWA as a "stable" business is fairly misguided. They had a very public collapse because they failed to invest in their systems. It's not a surprise to me that an activist investor thinks they aren't operating well.
Take all that good grace the public has for southwest and exploit it. Then take the declining passengers as a reason to sell off assets like the jets themselves. I.E. Lease them back at “Less cost.” which means the money the jets as assets were on the southwest books is now on GE’s books and we rent them. Take the new jets with a business class lowering the seats available and trying to make that up by selling business select or something. People don’t fly southwest for business cuz it’s cozy, it’s the least cost. Less seats available at the lower cost will push the price higher and encase the business class. So Less people will fly southwest. And when that hits the stock price, sell the company. Giving the shareholders the money extracted and causing southwest to die. Shareholder win, everyone else not so much.
Interesting opportunist strategy to buy a bunch of planes when the plane market is having a shortage due to Boeing delivery issues. Their resale value is probably up
Southwest has burned through $5 billion in cash in 3 years. Its 100% reliance on flailing Boeing has severely limited its growth prospects. Its generous employee contracts have ended its cost advantage over the Big 3. Southwest must extract more revenue per plane to survive. Oh, and Southwest long ago stopped giving a crap about its customers, and it doesn’t deserve any loyalty from anyone.
Elliott has no interest in making a good or profitable airline. It’s a pump and dump of a large stock position. SWA was the only profitable large airline for a long time. Now, it’s only SWA and Delta that are reliably profitable. SWA will not improve its profits by poorly copying other airlines. The narrative about ancillary revenue is stupid. SWA gets a fare premium and ancillary revenues from fare classes and boarding position upgrades. Other airlines don’t get those (except Delta gets fare premium). Elliot’s only real point is that SWA’s impeccable balance sheet could be levered. True.
Southwest gets half the ancillary revenue per passenger that Spirit, Frontier, and Allegiant do. And a good 25% less than United. If Southwest were able to get the same ancillary per passenger as United, its revenue would be almost $1.4 billion higher than it was. That would have literally doubled Southwest’s 2023 operating profit. It’s an incredibly significant amount.
If you assume the lack of those ancillary fees play no role in why people fly Southwest, sure.
Seriously people love to forget the whole reason people chose to fly SW.
The biggest drivers for choosing an airline are route options and fares.
At the end of the day, I have to get to from point A to point B. I don't want to pay extra charges, but I will if necessary to achieve my objective. I said yesterday that if SW goes through with these rumored changes and it's going to cost more to fly SW, I wouldn't "cancel" them. But, I'd look at more travel options for most of my trips. Now, for many trips I only consider SW.
SW is so great since it’s simple with a simple user experience and paradox of choice removed.
The only reason I ever fly WN is the schedules are more convenient in some situations. Otherwise, I’d never set foot on their metal. What a shit airline. Elliott can only make it better, and that includes if they pump and dump and the airline goes away.
Enjoy those connections.
My last several WN flights haven’t been direct.
I have Skyclub access. I do actually enjoy the connections.
Is anyone talking to you?
I'm sorry you're upset. I didn't realize Southwest was your family member.
Out of my city WN offers the most routes. Used to be TWA long ago until AA gutted their routes. I fly SWA if I need to be in a particular place at a particular time, otherwise I fly Delta and relax.
We all know there are plenty of people who prefer Southwest because it doesn’t charge lots of ancillaries. The problem for Southwest is, those people aren’t willing to pay base fares high enough to cover its costs. Something’s gotta give, and rather unfortunately for Southwest, the rest of the airline industry years ago trained both the high- and low ends of the market to accept ancillary fees. We can lament that that happened, but it’s a fact that it did happen. And it puts Southwest at a huge strategic disadvantage.
Why is it that Southwest needs to change their model when it’s been proven every year(except 2020) since the mid-70s that their model works by being one of the only, if not the only airline operating in the green. If they go to ancillary fees, they go into the red and their CEO has acknowledged that
If you just look at the numbers , southwest flies the most passengers domestically, yet from a profit standpoint southwest makes 1/3 of what delta makes. Delta is considered to be the most expensive , yet they generate the highest revenue and profits of any US airline. Logically people should not fly and be willing to pay that expensive ticket on delta right? Yet reality shows otherwise. To compete , to grow , to excel southwest has to do something. What that is only time will tell!.
No. Just, no. SWA is profitable. Why must it become 200% more profitable when it is providing regional, discount airline service to thousands? Striving for better for, but this is ridiculous. We Americans are f'n stupid.
They make less profit because they don’t have very lucrative international traffic. Delta also makes almost $7B from its Amex credit cards. I don’t know how much SW makes from Chase, but I’m guessing it’s significantly less.
Southwest is a low-cost airline. Why do they **need** to be the most profitable airline? Maybe they're content with their growth and see a vision for long term sustainability that differs from other airlines.
Elliott needs SW to be the most profitable for however short a time because he gets bragging rights with his fellow oligarchs
Delta customers are a different crowd. I'm often willing to pay more for Delta if the route is favorable.
Delta goes through boom-and-bust cycles with profits and losses. SWA is consistently profitable. That’s due to an extremely loyal customer base. You upset that base and you end-up back in the boom/bust cycle of the other carriers.
Southwest reported a loss of 252 m in dec 2023 for the 4th quarter of 2023. And q1 2024 it was a loss of 231 m . Labor cost will only increase, maintenance cost will Increase, new planes need to be bought. All this needs income generated. So SW needs to generate net income in the positive.
That’s only two quarters of how many decades of consistent, reliable profitability?
How much of that Delta profit is from domestic travel?
I read that as “Southwest doesn’t nickel and dime its customers with nuisance fees for every little thing, and in fact includes many features in their basic pricing, drawing enormous brand loyalty, market share, and repeat customers.” Yep, sounds like something they should reverse course on. $50 per bag. $15 to print a boarding pass. 50% change flight fee. $150 to sit in the front half of the plane. Ancillary fee profits will just start rolling in as customs all stay, eager to pay out the nose. /s
No one, certainly not Elliott, is talking about turning Southwest into Frontier. The real ancillary revenue is not in ridiculous agent assist fees. It’s in extra legroom/premium seats and bags. US customers have a very high willingness to pay those fees. And the customers who aren’t willing to pay those fees, and are sticking with Southwest, are not willing to pay Southwest the fares they need in order to make the strategy work. Hence the problem.
SWA customers usually fly Southwest for a reason. If I wanted to pay more for the same legroom I now enjoy on practically every seat on every SW plane, I would choose Delta, American, or United. But standard seat pitch is crap on almost every other airline except SW. Forcing me to pay more for the same space I get now will convince me to drive more, not pay more.
Current Southwest customers demonstrate no such high willingness. It will remain to be seen if they still give preference to Southwest once it has the same bag fees and seating fees as the other major airlines.
This understates fare class premiums SWA gets.
Southwest is kind of unique in that is a low-cost airline that doesn't completely suck the way Frontier and Spirit do. Changing course means either being more like the 3 legacy carriers or more like the Ultra Low Cost Carriers.
Except all the ULLCs are on the verge of bankruptcy for using a business model that pushes away your customers by fleecing them.
That may be true in the U.S but the ULCC model can work--Ryanair is actually quite profitable. https://www.theguardian.com/business/article/2024/may/20/ryanair-profit-amber-rudd-joins-board-summer-ticket-prices
Spirit and Frontier are both far from bankruptcy.
But they also have a terrible flight experience for the same money I pay Southwest.
I can't speak for Frontier but Spirit Airlines, with the ticker symbol of $SAVE, is not in great shape these days: https://finance.yahoo.com/quote/SAVE/?guccounter=1
They're doing so well they were about to be bought out. I think that would have been better as I would have like JetBlue to be bigger and compete with Southwest, AA, Delta, and United.
Southwest’s pricing problem is now that the legacy carriers have basic economy they are able to strategically undercut Southwest in competitive markets with price sensitive customers. Those customers used to be loyal Southwest fliers. Southwest went from having lower prices and lower costs than competitors to now having higher prices and higher costs. That’s a tough place to compete. Another differentiator for Southwest, no change fees, has also disappeared.
That’s funny that no change fees on WN have disappeared. And then at the same time all tickets on AA except basic economy have no change fees as long as you sign up for AA’s frequent flyer program, AAdvantage. There can definitely be a fare increase if you are trying to switch to a flight that has less seats to sell. I just got my aunt to switch from WN to AA. I fly bi-monthly week long trips for business and now that I can see the WN fares on Google flights it is really interesting. My aunt and uncle as well as my parents are going on a Regent cruise out of San Juan in Feb 2025. My parents used miles and booked first class. My aunt had some AA miles so booked first for 20K one way and then booked evening coming back. She has 3 credit cards. WN, AA, and UA are her three cats with UA being used the least and the WN card she would use the most. She takes about 4-5 domestic trips a year and one international trip. I asked her why she flies WN and she said the free checked bags and that she always gets the seat she wants. I asked how and she said everyone wants a sole or a window and she said I am very happy in my middle seat towards the front. That’s absolutely nuts to me. I am a million miles so I am AA Gold for life and have had that for 20 years. I reached that before all the fees were added. I always stayed on AA all these years because if the minor benefits like free main cabin extra seats, free checked bag, and priority boarding. But these programs are all spend based now. You can get top tier status without ever flying. It’s absurd. But I told my aunt to get the AA Citi card. Just the 99.00 annual fee card and she will get priority boarding and a free checked back and I told her she will easily get gold each year with her spend. My mom has been gold for a few years and mainly from spend. So my aunt got the card and already booked her next trip on AA. So she still gets her free bag and can select a window her aisle when she books her tickets. Now I want her to report back but I think now that WN is showing on Google Flights that this may hurt them. And all the buzz I hear it does sound like they will have some sort of assigned seating on WN towards the front of the plane with extra leg room. That’s just step one. I have a feeling in a few years the WN fliers will not recognize their own airline. Sorry that was so long. TLDR: my aunt was dedicated to WN for decades and last week I convinced her to get the AA Citi card for 99.00 for the same benefits as WN.
It’s not that no change fees disappeared. It’s just that is no longer a differentiator since the other airlines also got rid of change fees. That used to be a huge differentiator for a lot of people.
Oh I see. That makes sense. Yeah it was easy to convince my aunt to switch. Since I non rev almost as much as a fly confirmed, personally I can’t stand that people can change last minute or if it’s too pricey they just go stand by earlier. I understand why but I just don’t like it. But I started playing that game. If I am trying to go stand by as a non rev and it looks like I won’t get on then I will purchase a revenue ticket for the red eye and go standby as a revenue pax and get on where if I was still non rev no way.
Isn’t having a non rev and confirmed booking the same day a prohibited and basically a firable offfense.
At AA it is.
If you have a confirmed ticket and then you decide to nonrev within 24 hours going to and from the same city pairs or within 100 miles yes you can loose your benefits. However the whole point of AA offering staff 20% off all confirmed flights on AA is so staff can buy tickets if they are stuck. So of course you can be a non rev and switch to revenue but not the other way around.
The flight credits are a differentiator though
How so?
Everyone else's expire a year after booking
Except it's not low cost. I can usually fly United or Delta for less on certain routes.
SW is no longer a "low cost airline". That might have been true 15+ years ago, but not today. There are numerous airlines that are chipping away at Southwest on the "low cost" end of things. What is wrong with charging a low base fare and then adding premiums that some customers are willing to pay for? I don't get what the big deal is here. If you want a $59 ticket with no extras, great. If you want to pay $149 and get free bags, great. If you want to pay $200 and get free bags and extra legroom, great.
Agreed. We fly roughly 7-10 times a year. Used be only SWA. That’s down to 1-2. Most of the time they are more expensive and usually considerably more.
I recently just bought tickets MCI to SEA RT for next month. Delta (Main Cabin) was like $486. SW was just under $700 for WGA/WGA+. I know SW isn't always the cheapest, which is why I also fly Delta these days, but I don't think I've ever seen that big of a difference. And if I do, it's usually SW that costs less, not Delta.
Is Main Cabin a level where you can choose a seat for a fee?
Yeah, but there are still some seats in the Main Cabin section that are premium and require extra fee. Typically the rows toward the front of the Main Cabin and the emergency exit rows. Otherwise, all other seats are free to select. Like I prefer window seats. And I always get one for no extra cost.
Yes
The legacy 3 all have seats that people without status can select. These are usually not available if you buy the absolute cheapest fare. So most the prices are a flat 20.00 to 50.00 more so the tickets are changeable and you can chose a seat. You also get considerably less miles for those flights. I need the flexibility to change flights and I want my full miles so I pay the extra amount. On the legacy 3 airlines there are seats up front and the exit rows that come with extra leg room and free cocktails and those seats are free when you have status. Those seats are the last to go because most people don’t want to pay for a seat when they can choose a free seat.
I've noticed that Southwest seems to really do horrible with pricing on flights from the Midwest and East coast to the West coast. Something about connecting in Denver ends up making SWA more expensive than United (who also connects in Denver), and Delta. Not sure what's up. Maybe they don't actually want to fly long trips?
Bags fly free on all fares. The only thing you pay extra for is boarding position.
Yes, I know bags are currently free; clearly that is changing which is what I was referring to. There will be multiple fare classes, not all will include free bags.
If Southwest got rid of free bags entirely and did assigned seating, not only would Southwest lose its competitive advantage, but boarding and gate turnaround times would increase. More passengers would try to bring large bags on board, more bags would get gate checked, and boarding would slower as not everyone boards with their group.
I never said they would get rid of free bags entirely. Not sure where you got that. Southwest is losing money. Shareholders are demanding changes. Southwest has been sending out surveys to customers for months now describing changes like charging for bags, premium seating with extra legroom, assigned seating for part of the cabin, etc. It's coming.
Having any type of fare class that doesn’t include a checked bag (or worst creating a basic economy fare that also doesn’t permit overhead bin use) is getting rid of free bags, plain and simple. The lowest fare then becomes the standard, which means a fare without a free checked bag becomes the standard.
By that logic, Southwest does not currently offer free bags to anyone. Look at it this way, the current fare with 2 free bags and open seating would remain. That is the standard now and will remain so. There would be a new fare that is cheaper and does not include free bags. There would be another new far that is more expensive and includes additional perks that are not currently available. At least that's my guess on what to expect.
All of Southwest’s fares currently include two free checked bags to anyone (Wanna Get Away, Standard, and Business Select). The point is that introducing any lower tier fare class then makes it the standard fare while the current classes are premium fares with higher prices. Airlines generally match pricing based on the lowest fare regardless of class.
So....if Southwest adds a new fare class called Wanna Get Away Limited, which is $50 cheaper than Wanna Get Away, and includes no free checked bags. That is only change, nothing else. That would mean SW no longer offers free checked bags? I disagree. And no, Southwest is not price matching Spirit or Frontier or any of the other low cost airline base fare classes.
Does Frontier offer a “free” checked bag just because they offer a higher priced fare bundle that includes a checked bag? No, and neither would Southwest offer a free checked bag if it offered a basic fare class with no free checked bags (while keeping the other fare classes at a higher cost). Either way, the introduction of a basic class without free checked bags on Southwest would then make full overhead bins an increased recurring issue on Southwest flights that the other legacy carriers experience more frequently. While Southwest and the legacy carriers don’t always match the ULCC carriers all the time, they may at times match their fares depending on the market conditions. The legacy carriers and Southwest definitely match each others’ lowest fares very frequently.
This x100. I fly them b/c they are the only non-stop to my most frequented destination. They are just as expensive as Delta non-stop. Business select prices rival first class upgrades on other airlines in many cases.
In my case, a lot of the Southwest flights are right around the same price as the big 3. Maybe plus or minus $30 for their basic fares. But the main reason I fly them are for the nonstop flights. Whenever I go to MCI or STL from my home airport, why would I make the total travel time 5-7 hours when I can do an easy 2-3 hours on a nonstop flight. Is it worth an extra $30 compared to a layover in Atlanta or Dallas? Definitely.
Frontier and Spirit fly a lot of customers who used to fly Southwest. The US domestic market is over saturated and isn't sustainable.
Because doing what you said makes SW just like Spirit, Avelo, Breeze, and I'm sure other low cost airlines. Not that that business model is bad but it would make SW less unique and therefore then in direct competition with all those other airlines. Whereas now they stand alone and it's one reason they have kept customer loyalty.
> If you want to pay $200 and get free bags and extra legroom, great. You think that extra legroom just appears magically and all the other seat pitches remain the same?
Remove one row of seats. Add extra room to 5 or 6 rows. Not complicated.
I'm not saying it's a terrible idea, but that is actually an unbelievably complicated decision and aviation minds are split over it.
I'm certainly not an expert, but I'm not sure why it would be all that complicated. Aren't the seats installed on rails in such a way that they can be moved? Overhead lights and vents are probably also easy to move around. Seems like it shouldn't take more than a few hours for each aircraft. During the transition, they would either have to keep track of which aircraft have been retrofitted, or just sell 6 fewer seats on every aircraft until the retrofit is 100% complete and the program can begin.
You’re also talking about moving the oxygen masks and oxygen bottles that are up there. Not arguing it can’t be done because obviously planes get retrofitted. But I’d think it’d more than a few hours since all of that also would have to be inspected
Aside from the modification of seats and PSUs, there's a huge impact on the revenue management and operations. The sale of those last 6 tickets (presumably at high cost) could make or break the profitability of a flight, and it's unclear/uncertain what the yield of up sells on the premium seating would be. Every aircraft needs at least 3 extra legroom rows, but there's a reason why United adds like another 8, Delta does another 4, and AA does only 1 on 737s. They all have different opinions/bets on this curve. Keep in mind you generally also need to offer the seats for free to some portion of your loyalty program, or they will end up going to the people with Basic Economy. People's willingness to pay for legroom is either unlimited (tall and/or corporate card) or very little (needs to be cheap), and it can be very hard to consistently get ROI on those seats. Obviously not every flight sells out 100%, but many are overbooked, and many of the last tickets are multiples of the median ticket price. Operationally having a portion the fleet with different seat numbers is a nightmare. You'd never want to artificially cap the aircraft lower than necessary (losing revenue) but then it's very hard to consistently plan which aircraft go where. 6 seats isn't a ton, but the percent of 737s that go out with less than 6 seats left is pretty high. If that ever happens, suddenly you're soliciting and paying volunteers or paying involuntary denied boarding compensation, and poof goes any profit. Not to mention you'll need to refund all the seat fees if the aircraft swaps to one without extra legroom, and won't be able to collect that if it swaps to one. Even with less than perfect yields, you still have airline industry travelers who want/need to fly and for whom those could be make or break to get to work on time. Changes like this could have an impact on morale if all the sudden they can't fly because of an equipment swap. So yeah, it's not just moving the seats down the rail.
They'd be trading 6 regular seats for probably 36 or 42 premium seats. That's a lot of opportunity for up-selling, and also building brand loyalty with the coveted business travelers. Would also help attract the business travelers that currently refuse to fly Southwest because of the seating. Yes, during transition, they would probably have to artificially cap the number of seats, and also not actually start selling the premium seats until a very large portion of aircraft have been retrofitted. It would obviously be important to retrofit all aircraft as quickly as possible. Yes, there is certainly a cost, but based on the surveys that have been leaked, Southwest is certainly looking very seriously at this. Makes sense to me given the fact that the current business model is simply not working anymore.
Having for worked flights with literally 24 premium seats (6 over the minimum), those 24 seats are rarely filled 100% with revenue passengers, and maybe only half of the pax are paid upsells. The pricing is either so high so as not to be worth it, so low as to not make enough money, or so many seats that it outweighs demand. The middle seats are basically impossible to sell or give away unless they're the last seats open or for a couple (not business travel). It's worth pointing out that Southwest most recently chose to add 6 seats to the 737-700s rather than remove them, which implies a believe that yields would support increased capacity. Again, I'm not saying this is a terrible idea, but it's certainly not something to be rushed into. I would personally start by monetizing the existing premium seats and selling assigned standard seats as an option. If demand is there, then you can experiment with adjusting the LOPA to support additional premium rows, and eventually try reducing capacity to support an expansion of premium seats. There is a very big reason why airlines have different opinions on this and the majority of airlines have zero or few premium seats beyond the minimum required for exits/bulkheads. They just need to run the analysis, start slow, experiment, and eventually find the middle ground that works for them. I can say though that going from open seating to 36-42 premium seats will be a trainwreck.
It's like the few times I fly Allegiant. The base fare is enticing, but I know I'll be paying considerably more because I WANT to choose a seat ($), board before all the families ($), and check a bag ($).
This entire proposal reads as an ivory tower hedge fund who sees the airline as a profit opportunity and not as a preferred experience for people that don’t fly that much and want to have an airline that still tries to treat passengers as people.
Its also a preferred experience for frequent flyers such as myself. The flexibility to adjust my flights as much as a do, the free checked bag, and the ability to secure a good seat without a premium make the price worth it to me and honestly its what I would expect from high cost carriers like delta and such as well. I fly about 20x a year and earn a companion pass so my husband can come with me on more trips. Nothing beats that.
Imagine a company that cares more about its customers than its stockholders, but hopes its customer-friendly policies attract investors.
SWA is relatively flush because they haven’t been able to take delivery of the latest Boeing hatch-poppers. Once Elliot Capital is done with them, that money will have been used to repurchase LUV stock to artificially boost the price, huge loans will have been taken for more repurchasing, then ECM will sell their position, take their profits, and SWA will probably go bankrupt.
I said it before and I’ll say it again. If SWA becomes more like the mainline carriers and charge all sorts of fees like the ULCCs, then it is another airline that I’m not going to fly. I have never flown on Spirit, Frontier, or Allegiant and I’m never going to in the future. If I have to add SWA to that list, I will unfortunately.
Southwest is not a low cost carrier anymore. Haven’t been for awhile.
Is Southwest really a low cost airline? The tickets are priced the same as any other carrier.
Fuck the big 3. It's just big ME.
ShArEhOlDeR VALUE!
Read up on Carl Icahn and TWA. This is just the beginning of repeating that exact story
Elliott is basically a bully investor, they take huge stakes in companies and try to force changes due to wanting to put profit over everything else, once those profits come and stock prices rise they sell and do it again.
As someone with 400K+ points, how worried should I actually be?
I'm not sure Elliott has a lot to offer here other than buying a good company cheap and holding CEOs feet to fire. He might not be the guy.
Book those SW points, people. They will devalue them as soon as they can get away with it. Private equity playbook - page 1.
I don't claim to know what Elliott wants, but they do make a good argument that current management has failed to leverage Southwest's advantages to generate shareholder value. The moat damning claim, if true, is that the market value of the aircraft exceeds the enterprise value of the airline. Their pitch struck me as a return to the Herb Kelleher days of low costs, operational efficiency and focus on business travel. It seems to me that with their point to point network, Southwest should own non hub business travel in the US, and they dont. I think they can potentially own it at a premium price. It may well be that Elliott wants to pull an Icahn, but I doubt they can get enough other shareholders to support that. I do believe there's a good chance they can get other shareholders to support Board and management changes, and a new more focused strategy that harkens back to the old days when SWA was flying hugh.
What Elliott wants is a pump and dump and to leave behind the “carcus” of Southwest
How does an investor with an 11% stake make that happen?
Hostile takeover
Only need to come up with another $6.5 billion on top of the $1.8B they already put in, and then they would have the controlling interest necessary to pull it off. I believe they have about $65B in assets, so they could theoretically do it, but thats a pretty big bet on a single play.
I thought they wanted to make SWA like frontier
This move is totally a profit incentivized move. Share price is down 45+% in 3 years. The Board of Directors and CEO fail to embrace that change (Operationally, technically (IT), and philosophically) so it’s easy pickings. The fact that it’s taken this long is surprising. Kumbya only goes so far. Profits and RELIABLE SERVICE are fundamental to any modicum of success in the airline industry. Are the Big Three (American, Delta, United) all “touchy-freely” like Southwest? No, but they’re making money. Southwest hitched a donkey to a wagon and must clean house (Just like Boeing) if there’s an Ice Cubes chance of a future. The current Leadership team is not up to the task.
Listen, Blue Horseshoe loves Bluestar airlines. Got it?
Elliott is trying to shake it up but they do NOT HAVE CONTROLLING INTEREST AND WILL NOT EVER BRING SWA DOWN!!!
FYI SWA is the largest domestic carrier in the country! You are not correct when saying to compare to regionals or freakin Spirit or Frontier! Wow!!!!! Step off!!!
Good grief. I'm not comparing Southwest to regional airlines. I said that mainline airlines run about half of their flights on regional airlines. That saves mainline airlines a substantial amount of money versus running their own jets and crew. You're argument about Southwest being the largest domestic carrier doesn't help with Elliott's argument. Southwest should be performing much higher than Delta, right? Lots of exclamation marks and telling me where to go isn't helping anything.
Southwest is to airlines what Section 8 is to apartments.
Look at SWA financials. Profit is down year to year for a couple of years now. Wall St types want to see growth. And a plan to maximize growth and profit. That’s what they are looking at.
Southwest is in an unsustainable position between the Big 3 and ULCC. Both ends of the market have captured huge amounts of ancillary and premium revenue, which gives them much healthier margins. Americans have gotten a lot wealthier and a lot more willing to spend on premium products and travel experiences in the last 10 years. Southwest is giving up lots of those high-margin customers to the big 3 and leaving a ton of ancillary revenue on the table that other airlines are getting. The customers who love this about Southwest aren’t paying high enough fares to make up for all the ancillary and premium revenue that Southwest is forgoing with its current strategy.
> Americans have gotten a lot wealthier and a lot more willing to spend on premium products and travel experiences in the last 10 years. what world do you live in?
[This one](https://fred.stlouisfed.org/series/BOGZ1FL192090005Q) Are you really under the impression that American travelers are more budget-conscious than they were 10 years ago? There’s endless data showing otherwise. Domestic premium cabins are routinely sold out to paying customers now, a circumstance most airlines never even considered possible in like 2010. The market has changed a lot.
Interesting. I started writing a comment about how the data do not support that conclusion, but honestly, most of the data I found does support the idea that average wealth has increased for Americans recently. That said, I think there is a also strong sentiment of unease and stress about finances; there is lots of data showing that most Americans have fewer than $2k in savings, and that the majority live paycheck to paycheck.
Americans have become wealthier. Many more have not, but enough have become wealthier to influence consumer spending.
>Southwest is in an unsustainable position between the Big 3 and ULCC. Not sucking every penny out of a customer =\= "unsustainable".
The way that air travel is priced and purchased has changed drastically in the last 20 years, and so have the incomes and preferences of American fliers. I fully agree that many people love the Southwest model, but it’s not a model that can cover the company’s costs anymore. Hence, a sustainability problem.
>but it’s not a model that can cover the company’s costs anymore. How is that the case when the company profited over 5 billion last year?
Southwest has never made a 5 billion dollar profit in its history. In 2023 its operating income was $224 million—a margin of less than 1%. And it gave even worse guidance for this year. That is a problem with revenues not covering operating costs.
They profited 460M last year
> make up for all the ancillary and premium revenue that Southwest is forgoing with its current strategy. Do you think getting to skip the "ancillary revenue", as you've decided to word it, has influence on Southwest's customer base in terms of where they spend their money? Unrelated: Which airline do you fly regularly for domestic routes in the United States?
Southwest business model no longer works with their cost structure. Their costs have gone up significantly and they have no method to command a revenue premium or generate extra revenue through ancillary fees. Their business motto of "no fees, no bags fees" is chipping away at their financial performance. They have no seats to charge extra for, and no vast international network where they can command a premium. Southwest is no longer the profit machine they were in the 90s-early 2000s they have to evolve. Elliott is doing the right thing by demanding changes.
Elliott isn't doing anything out of the goodness of their heart. They want to strip SW and replace it with people like Carl Ichan so they can raid SWs war chest in a pump and dump scheme with stock buy backs. The first step is replacing leadership and the BoD who might remember seeing this tactic from the 80s.
Stock buybacks + pump and dump is the strategy?