It’s no secret that Southwest’s books aren’t looking too great. After suffering a $231 million first quarter loss, the airline is looking for new ways to head back to the black.
Southwest’s share price has been on a general decline since April 2021, losing more than half its value in that time. With 737 MAX deliveries stifled as a result of investigations following the Alaska 737 MAX 9 door plug blow out, the company was forced to trim its staff complement and less profitable cities. They also took a reputation hit after suffering a major software glitch in December 2022.
One possible change is already in the pipeline with the much talked about possibility of assigned seating as part of a new revenue strategy. Further focus group info from OMAAT seems to add more fuel to these rumors.
Credit: Southwest AirlinesElliott Investment Management, a New York-based fund management firm with a 1.9 billion (just over 10%) stake in Southwest, recently expressed dissatisfaction with the way the airline is being managed and is asking for major changes to be made to increase the company’s share value.
In an open letter to the company, the investment firm said:
Southwest’s rigid commitment to an approach developed decades ago has inhibited its ability to compete in the modern airline industry; this ethos pervades the entire business with outdated software, a dated monetization strategy and antiquated operational processes. This failure to modernize is vividly underscored by the December 2022 operational meltdown that was caused by the Company’s outdated technology, which led to Southwest stranding over two million customers over the holidays.
In the letter, they also propose three major recommendations which they think will steer the company towards profitability. Two of those include recruiting experienced external professionals to bring new life to the board of directors, as well as replacing current CEO Bob Jordan.
They also want a committee to be put together to “modernize Southwest’s strategy and operations with a focus on increased customer choice, improved cost execution and updating outdated IT systems, among other opportunities”.
The letter doesn’t go into detail about suggested monetization strategies, but a Forbes article indicates the firm wants free checked bags done away with entirely. While it is one of the airline’s redeeming perks, the investment firm feels it is a huge missed opportunity to earn additional ancillary revenue.
Shooting themselves in the foot for a quick buck?
There’s no doubt that Southwest has a unique model, with open seating and two free checked bags, but with the possibility of assigned seats on the horizon, will removing checked bags really work in the long run?
There’s no doubt that the carrier has had some bad luck with its growth as a result of delays with certification of the MAX 7, and MAX 8 deliveries. While I agree that Southwest needs to upgrade its software and possibly work on its pricing model, adding fees for checked bags could possibly make them uncompetitive.
Even though Southwest operates as low cost carrier, their prices haven’t been the best as of late, with Spirit, Frontier and other LCCs offering even more competitive fares (even with checked bag fees added). On the flip side, if customers have to pay for checked bags, they might just opt to fly with legacy carriers and benefit from additional perks not offered by Southwest. But that’s just my two cents.
Featured image: Bradley Wint/Gate Checked
