Southwest Rips Up its Business Model: Here’s What’s Changing

Skift Take

Southwest’s leadership team will be hoping that these changes will be enough win back customers and fend off a vocal activist investor.

Gordon Smith

Southwest Airlines announced a radical shake-up of its decades-old business model on Thursday. The low-cost carrier is transforming its boarding policy and adding premium seating in an effort to stay relevant to changing consumer preferences.

Bob Jordan, President and CEO of Southwest, described the project as “a transformational change that cuts across almost all aspects of the company.”

The headline move is premium seating. Southwest says this will be a “premium, extended legroom portion of the cabin.” Specific cabin layouts are still at the design stage, however it expects around one-third of seats across its fleet to offer extended legroom. All Southwest planes will offer the more spacious product. 

Among the other high profile changes is the adoption of allocated seating. Southwest has long been known for its unassigned approach, however research from the airline suggested that 80% of Southwest customers, and 86% of potential customers, prefer a booked seat.

What Else is Happening at Southwest?

The carrier will also redesign its airport boarding model, with specific details to be announced later. Other moves include the introduction of a 24-hour operation with redeye flights. The airline says this will increase aircraft utlilization and “further optimize the network.”

The first overnight routes will begin in February 2025 between the following cities: Las Vegas to Baltimore and Orlando; Los Angeles to Baltimore and Nashville; and Phoenix to Baltimore.

“We have been building purposefully to this change as part of a comprehensive upgrade to the Southwest experience as we focus on customer expectations – and it will unlock new sources of revenue consistent with our laser focus on delivering improved financial performance,” Jordan added.

Will Southwest’s Changes be Enough?

These are big changes for Southwest, but not entirely unexpected. During its quarterly results call in April, the airline said it was “studying product preferences and expectations.” 

It comes as the carrier fends off a highly vocal activist investor. Earlier this month, Elliott Investment Management called Southwest’s board “profoundly out of touch.” It is pressing for a shake-up of the airline’s leadership team. 

Gary Kelly, Executive Chairman of the Board, said, “The Board fully supports these efforts to usher in a new era for Southwest Airlines, and we have the ultimate confidence in Bob [Jordan] and our leadership team to design and deliver an experience that is unique and true to our Southwest Legacy.”

Full details of the changes are expected to be announced during an investor day event in late September.