Southwest Airlines announced significant changes to the boarding process and seat assignments on Thursday to increase its appeal to passengers and boost revenue.
The US aviation company, which is under pressure to increase its profits, will start assigning seats and selling some seats with extra legroom. These measures also come in response to an activist investor demanding an overhaul of the company's management and strategy.
This is the right change at the right time," said Southwest CEO Bob Jordan in an interview.
It is still unclear when flying with assigned seats and premium rows will begin, but Southwest plans to start bookings for it next year. The exact changes depend on regulatory approval and retrofitting the aircraft. More details are expected at an investor presentation at the end of September. Additionally, Southwest plans to offer night flights for the first time starting next year.
Southwest reported a profit of $367 million in the second quarter on Thursday, representing a 46% decrease compared to the previous year, despite record operational revenues. The company admitted that it sold too many summer flight tickets too early, resulting in missed lucrative last-minute bookings. Nevertheless, the profit exceeded analysts' expectations.
The stock of Southwest rose by 4.5%, while other major airlines also gained. The shares of American Airlines climbed by 3.7%, despite the company lowering its profit forecast for the year.
Elliott Investment Management, an influential hedge fund with a $1.9 billion stake in the company, criticized Southwest for its slow adaptation to modern air travel needs. In a letter to the board, Elliott called for comprehensive changes and argued that many investors had lost confidence in the company's management.
Southwest stated that it had already begun examining potential changes last fall, before Elliott announced his stake in the airline in June.
Jordan declined to specify exactly how much additional revenue the new initiatives would bring but said he expects them to generate "significantly more" than the current revenue of nearly $1 billion from the sale of extras such as preferred boarding.
Plans from Southwest Take the Pressure off Passengers to Check in Exactly 24 Hours in Advance or Pay Extra to Get a Good Spot in the Boarding Queue
The airline conducted a survey among thousands of customers to find out what they want and what they would be willing to pay for. 80% of respondents preferred assigned seats – an overwhelming share that surprised Jordan. "Our customers really, really, really want it," he said.
Southwest aims to attract more passengers through these changes, including those who previously had not considered the airline. In an effort to attract more business customers, Southwest found that business travelers have little interest in leaving seat selection to chance.
The new seats with extra legroom will ultimately make up about one-third of the seats in Southwest's entire fleet. Ryan Green, the manager responsible for commercial transformation, explained that Southwest seats already rank among the roomiest in the economy class, making it possible to give up some space without compromising the comfort of those who do not pay extra.
The boarding process of Southwest, which divides customers into three groups (A, B, or C) and assigns them a number, is being revised. Passengers who pay for upgrades, have elite status, or book more expensive tickets can improve their position.
To test various boarding methods, Southwest used employees and their families to practice boarding and deboarding in Houston over several days. The passengers were equipped with carry-on luggage and strollers, and some used wheelchairs. They tried different boarding and seating configurations to determine whether seat assignments would slow down the process – a reason why the airline had not implemented this so far.
Jordan knows that there might be a small but vocal group of superfans who are skeptical of the changes. 'I think we will convince these people,' he said.
