Southwest Airlines doesn’t know who they are any longer, and doesn’t know what their core business is. They’re just like the rest of the airlines, but not as good, now that they charge for checked bags and seat assignments and expire their flight credits – but they have the worst in-flight wifi, no standard power outlets, no seat back entertainment screens, and no ovens in their galleys to offer meals. There’s no first class, no lounges, and they’ve even taken an axe to the company’s famous culture through layoffs.
They said checked bag fees would generate $1.5 billion in revenue but cost them $1.8 billion in business. It turns out to be worse than that – in July, they touted they’d achieve just $1 billion in revenue even as once-loyal customers abandon them. So they’re flailing – they executives revamped the business model to save their jobs as Elliott Management took effective control of the board. And CEO in name only Bob Jordan says they’re now considering new planes, first class, and lounges.
Southwest is chasing whatever customers say they want, whether it’s iPhones, donuts, or European destinations.
We are going to continue to pursue the customer and provide the things that they want. We’ve got … millions of folks that love Southwest Airlines. They would love to fly us to Europe, as an example.
That could mean new planes, premium cabins, and airport lounges.
Southwest Airlines doesn’t have lounges… We don’t serve destinations beyond what the 737 [can] serve. We don’t have a true premium product… A first class. A business class.
And all Boeing 737 operators could go with Airbus A321XLRs for Europe, because those are cheaper to operate than widebodies and can fly further than the carrier’s 737 MAXs (that could operate to places like Iceland and Ireland).
Should we choose to fly to Europe… that’s not a mission the 737 Max will do, so we need a different aircraft…It could be that a widebody is just too much, at least for a start.
But Jordan doesn’t actually know, because they’re quickly trying to figure out a future for an airline that’s become rudderless.
I’m not promising those things… Everything is on the table at Southwest.
Southwest now partners with Icelandair, China Airlines, and Eva Air. That’s a start, and something they should have done years ago – sell tickets to customers of airlines bringing passengers to the United States, and sell travel beyond their own destinations to their customers.
There’s a lot of change that’s been needed at Southwest. They probably maxed out their business model of one plane type, which limited them to flying to large-ish destinations close to the United States. They don’t have feed from smaller cities with regional partners or small planes (for markets that can’t support 737s) or to long-haul destinations too far to reach with a 737. And they haven’t had the products people want to buy – they’re adding extra legroom seats, but still won’t let you pay to block a middle seat. And they became top-heavy and underinvested in IT (hence their famous Christmas 2022 meltdown).
The problem is that this implies there’s no real opportunity to return to the kind of growth the airline saw in the past, and the kind of valuation multiples for their stock. There’s no great answer for Southwest, but their approach – to copy the business models of financial laggards JetBlue and American – isn’t promising.
