Inside Southwest's plan for its future

DALLAS— Southwest Airlines Executives laid out their vision for reinforcing profits to Wall Street on Thursday: more legroom seats starting in 2026, assigned seating, international partnerships and night flights. Southwest's latest plan comes as its executives attempt to fend off activist Elliott Investment Management, which has called for a leadership change.

Southwest said its three-year plan will increase earnings before interest and taxes by $4 billion in 2027.

The airline also increased its earnings within the third quarter Sales forecast and said its board had approved $2.5 billion in share buybacks.

Southwest expects third-quarter unit revenue to rise as much as 3% in comparison with the identical period last 12 months, after previously forecasting a decline of as much as 2%, due partly to airlines rebooking passengers who had originally flown on. affected by the CrowdStrike outage in July.

Shares of Southwest rose greater than 5% on Thursday and other airlines also closed sharply higher after oil prices fell nearly 3%.

Like many changes within the aviation industry, these latest initiatives won’t occur overnight. Southwest needs to coach staff, update technology and inform customers of the changes.

Seats with extra legroom won't come to market until 2026 because the airline needs approval from the Federal Aviation Administration and time to retrofit planes, a slide from Thursday's investor presentation said. It is estimated that the brand new cabins, wherein a couple of third of the seats could have more legroom, will generate earnings before interest and taxes of $1.7 billion in 2027.

The latest seats could have at the very least 34 inches of legroom, in comparison with an ordinary pitch of 31 inches, the airline said.

Southwest has been under pressure to desert its open seating model and infrequently chaotic boarding process. Under the brand new plan, there might be no seat project until check-in for the most cost effective ticket class, Wanna Get Away, just like the present system. More expensive tickets offer more access to seats, but Southwest didn’t provide details of that process Thursday.

“For canceled customers, the seating and boarding process is the primary reason they did not return to Southwest,” said Ryan Green, Southwest’s chief business officer. “We were impressed by how clear the message was. We definitely need to evolve our model to better meet customer preferences.”

Southwest also announced its first international partnership with Icelandair.

Southwest also said Thursday that it should stick with its longstanding policy of allowing customers to examine two bags without spending a dime, saying it should generate “market share gains in excess of potential revenue losses from baggage fees.” Southwest executives call eliminating free checked bags a 3rd option that will hurt bookings.

The carrier can also be trying to scale back costs. On Wednesday, Southwest told employees it could cut service in Atlanta next 12 months and potentially cut greater than 300 flight attendants and pilots from the town to chop costs.

The airline also announced Thursday that it could add Bob Fornaro, a respected industry veteran who previously served because the helm Spirit Airlinesto its board. Southwest and Fornaro have existed for greater than a decade. He was CEO of AirTran, the airline with which Southwest merged in 2011, and served as a consultant to Southwest after the merger.

The Dallas-based airline has made profits for nearly half a century in an industry known for ups and downs. It stayed true to its easy business model of flying Boeing 737 aircraft that supply just one class of service and draw back from complexity that could lead on to higher costs. The company prided itself on customer-friendly policies like free checked bags and never charging customers change fees long before major airlines eliminated them on most tickets 4 years ago.

But pressure on Southwest CEO Bob Jordan and other executives has increased within the years following the pandemic as costs have risen, global travel has returned and competition has increased pressure on upscale offerings similar to luxurious lounges and roomier seats has major donors. Over the last decade, U.S. competitors have introduced basic economy fares and begun charging for things that were once free, similar to: B. the seat reservation to charge fees.

Southwest has also modified, offering longer flights, including to Hawaii, and customers want more perks, convenience and technology, airline executives said.

Southwest has supported Jordan despite calls for his substitute by Elliott, which the corporate reiterated Thursday after its investor day presentation.

Elliott said in an announcement that Thursday's announcements were “further evidence that Mr. Jordan lacks the vision and ability to implement these initiatives,” and said competitors had accomplished work on assigned seating and premium products more quickly. Jordan declined to comment on the timing, citing years of labor by competitors to modernize cabins.

Jordan said on the investor day presentation that the corporate stays open to working with Elliott, which owns a couple of 10% stake within the airline. On Tuesday, Elliott said a rare shareholder meeting could possibly be called as early as next week.

“We have demonstrated this willingness time and time again through our efforts and commitment, but Elliott has consistently shown little or no interest in working with Southwest to create greater shareholder value, instead focusing on how to do so “The latest letter shows “about the latest actions, about tactics and gamesmanship,” said Jordan. He called Southwest's plan deliberate and detailed.

“For Elliott to call this plan rushed and arbitrary is, in my opinion, crazy,” he said.

The airline must expect delays in aircraft delivery Boeingincluding a not yet certified 737 Max 7, the smallest aircraft within the family. Without a smaller plane, Southwest cut unprofitable routes that might need been higher served by planes with fewer seats to satisfy demand.

“We have taken dramatic steps to mitigate future operational risk “Boeing is delaying by significantly slowing our growth and halting our hiring,” Jordan said at Thursday's event, adding that every one of the airline's growth through 2026 will come from efficiencies similar to faster aircraft turnarounds and red-eye flights.

He said: “Previous financial problems caused by Boeing delivery delays and other Boeing problems were largely resolved through the use of loans for future deliveries.”