Why Southwest Airlines Is Making Major Service Changes

In the face of changing consumer preferences, cost pressures and disappointing post-pandemic profits, Southwest Airlines is planning to adapt some signatures of its brand.

The adaptations include changing a long-standing open seating policy in which passengers are free to select any available seat once onboard. In addition to assigning seats, Southwest is preparing to segment its cabin, with more legroom seats at the front available for purchase, and to launch transcontinental night flights. These policies look more like the standard practices of other US airlines, and the changes will likely add a degree of operational complexity to a business model that has always been about keeping things simple. But Southwest is under pressure to boost profits and restore industry-leading margins.

The Dallas-based airline announced the changes in July after activist investor and newest large shareholder Elliott Investment Management made public statements claiming that Southwest’s leadership was unable “to adapt to the complexity of the current airline operating environment” and called for changes at board and executive levels.

But Southwest had already teased intended changes before Elliott’s statements were made, including its intent to introduce overnight so-called “red-eye” flights. Southwest has been “building purposely” toward the changes unveiled on July 25, CEO Bob Jordan said, describing them as part of a “comprehensive upgrade” to the overall experience as Southwest focuses on customer preferences and looks for new revenue streams.

Southwest’s net profits have fallen steadily after recovering from a $3.1 billion net loss in pandemic-hit 2020. The airline posted a remarkable $977 million profit in 2021, but that narrowed to $539 million in 2022 and $465 million in 2023. During the first half of 2024, Southwest posted $137 million in net income.

ONBOARD CHANGES

“Moving to assigned seating and offering premium legroom options will be a transformational change that cuts across almost all aspects of the company,” Jordan said in announcing the plans. “Although our unique open seating model has been a part of Southwest Airlines since our inception, our thoughtful and extensive research makes it clear this is the right choice—at the right time—for our customers, our people and our shareholders.”

The changes build on an ongoing modernization to provide faster onboard Wi-Fi, in-seat power, larger overhead bins and a refreshed cabin design. Citing company research, Southwest said 80% of its current customers and 86% of potential customers would prefer an assigned seat, with open seating cited as the number one reason for choosing a competitor.

“The last time we looked at it, which was . . . several years ago, the preference was more 50-50,” explained Jordan during a second-quarter earnings call. “It’s very clear that as different generations emerge and spend more on travel, their preferences are potentially very different than the prior generation.”

Southwest hopes an evolved product will broaden its appeal.

“You’ve got to aim at the customer that you’re going to see in five years and 10 years,” Jordan told analysts and investors.

Red-eye service is now set to begin in February 2025, initially connecting Las Vegas to Baltimore/Washington (BWI) and Orlando; Los Angeles to BWI and Nashville; and Phoenix to BWI. Timing on the other changes will be announced in September.

Though its new cabin layout will require FAA approval, the carrier said it expects to make bookings available in 2025 and intends to offer an extended legroom product on roughly one-third of its seats across the fleet, today comprised of around 800 Boeing 737NGs and MAXs.

“We’ve been studying this in-depth to preserve our operational efficiency and how quickly we turn the aircraft,” Jordan said, pointing to live boarding tests and more than 8 million digital simulations incorporating data from real passenger manifests.

“The data clearly indicates that any impacts are neutral or an enhancement to current performance,” he said.

Additional changes and details of the plan’s revenue potential are also expected to be announced in September. But “just to put a ballpark figure out there,” Jordan said that Southwest’s current boarding ancillary products, like its early bird upgrade offering, “generate just shy of one billion dollars for us . . . the assigned seating and extra legroom world is substantially north of that,” he said in July.

For now, Southwest seems determined not to change one policy that will set it apart from almost every other US carrier. It will continue to not charge extra for checked or carry-on bags. Charging for bags “is not something under consideration right now,” Jordan noted, describing the policy as one of the reasons customers choose Southwest.

When Southwest launched in the early 1970s, it was with a vision to be a high-frequency, low-fares, point-to-point, no-frills carrier. By the 1990s, Southwest boasted the strongest balance sheet of any US airline. At the time, CEO and co-founder Herb Kelleher attributed that success to adhering to the status quo. The airline has weathered economic storms through the decades, including 9/11 and the 2008/2009 global recession, better than most of its competitors. But the pandemic has changed customer expectations of air travel and Southwest—an all-Boeing operator—has not been immune to the supply chain issues that have bedeviled much of the industry.

In the end, Southwest’s leadership decided it had to make changes to long-standing policies to preserve its financial strength and independence and, ultimately, its customer service.

“The board fully supports these efforts to usher in a new era for Southwest Airlines,” executive chairman and former CEO Gary Kelly said. “We have the ultimate confidence in Bob and our leadership team.”