Passengers familiar with Southwest Airlines know the sometimes chaotic free-for-all boarding policy has been around for decades. However, this policy is ending as the airline plans to introduce assigned seating. The change aims to boost revenue in response to worsening revenue challenges and mounting pressure from an activist investor demanding an overhaul of the airline's leadership and operating strategy.
The Wall Street Journal reports that Southwest's business model will undergo "sweeping changes in a bid to broaden its appeal to passengers and boost revenue." These changes include ditching the free-for-all boarding policy for assigned seating with premium options and extra legroom.
"It isn't clear when flying with assigned seats and premium rows will start, but Southwest said bookings for them are expected to begin next year," WSJ wrote, adding, "The exact timing of the changes depend on the airline gaining regulatory approval and retrofitting its planes."
Additional details about the policy shift will be provided to investors in late September. There's also a plan to operate red-eye flights, attracting overnight travelers starting next year.
The revenue challenges were highlighted in the company's second-quarter earnings report today, with a profit last quarter beating expectations. However, its forward guidance for revenue costs in the quarter was much worse than Wall Street's estimates.
"We are taking urgent and deliberate steps to mitigate near-term revenue challenges and implement longer-term transformational initiatives," CEO Bob Jordan said in a statement, quoted by Bloomberg, adding seat changes are a critical move to "an ongoing and comprehensive upgrade" to passenger accommodations.
The airline has faced several challenges, including fewer-than-expected aircraft deliveries from Boeing, a series of safety incidents that prompted a Federal Aviation Administration review this week, and slowing growth. As a result, its shares have fallen nearly 8% this year.
Last month, Elliott Investment Management revealed a $1.9 billion stake in the carrier, calling for leadership to reverse years of underperformance and calling management "stubborn unwillingness to evolve the company's strategy."
"Southwest's executive chairman and its CEO, who have spent a combined 74 years at the company, have presided over a period of severe underperformance, and they have demonstrated that they are not up to the task of modernizing Southwest," the activist said.
Southwest has said it will examine Elliott's proposed changes: "The Southwest board of directors is confident in our CEO and management's ability to execute against the company's strategic plan."
While Southwest was quick to act on reformatting its boarding policy, which could very well attract new customers, we doubt the airline will change the "bags fly free" policy - or face a boycott with customers.
