Southwest Airlines has always been different from the other big U.S. airlines. It is known for its customer-friendly policies like free checked bags and open seating. The airline now faces pressure to change its unique approach. Elliott Investment Management, which has built a nearly $2 billion stake in the airline, is pushing for a major overhaul that could significantly impact the customer experience.
One of the most notable changes proposed by Elliott is the potential elimination of Southwest’s popular “bags fly free” policy. The activist investor apparently views much-loved amenity as a missed opportunity to generate additional revenue, citing other airlines’ profitable baggage fees. At times, Southwest has featured the free bag policy in its advertising to show how it differs from other airlines.
If Southwest were to introduce checked bag charges, it would be a significant shift in the airline’s strategy and could alienate the airline’s customers who have come to expect this perk.
Seating Changes Ahead?
In addition to the possible changes to the baggage policy, Elliott is also targeting other service features that set Southwest apart. The investor is dissatisfied with the airline’s open seating policy and lack of premium and “basic economy” options. While not universally loved by flyers, Southwest’s approach has helped keep costs low and fostered a more egalitarian atmosphere. Introducing assigned seating and stratified classes could make Southwest more like its competitors, further eroding its unique brand identity.
Major Leadership Overhaul
The proposed changes extend beyond customer-facing policies. Elliott is also pushing for new leadership, calling for the replacement of CEO Bob Jordan with an external candidate and an overhaul of the board. This shift in management could lead to a broader change in strategy and priorities.
One change Southwest flyers would no doubt appreciate is a makeover of the firm’s creaky IT systems. A systems meltdown in December, 2022 stranded 2 million passengers.
Which Stakeholders Are Most Important?
While Elliott argues that these and other proposed changes are necessary to boost Southwest’s financial performance, they try to make the case that customers and employees will benefit as well.
The airline’s customers may disagree. Southwest’s loyal following has been built on its distinct approach, which prioritizes simplicity, affordability, and a friendly atmosphere.
At its core, the changes described in the Elliott proposal will extract more revenue from customers to better reward its shareholders.
Whether or not Elliott gets the management change it seeks, Southwest must strike a balance between improving returns for shareholders and maintaining the customer experience that has set it apart. The outcome of this struggle among stakeholders could determine whether Southwest retains its unique identity. Turning into a clone of United, American, and Delta could be a fatal mistake.