Southwest Airlines has warned its employees it’s going to need to make “difficult decisions” in the long run to spice up profits because the airline faces pressure from activist Elliott Investment Management, which is looking for a leadership change at the corporate.
Southwest announced a series of major changes to its greater than 50-year-old business model over the summer in an effort to spice up revenue. The plan is to eliminate open seating in favor of assigned seating, offer seats with more legroom that command a better fare, and introduce red-eye flights.
It has also began allowing its flights to be listed on Google flights and kayak and has modified its ads to appeal to more younger consumers, COO Andrew Watterson said in a video message to employees last week.
“All of this is not enough. We also need to change our network,” Watterson said within the video, a transcript of which was seen by CNBC.
“We are faced with some difficult decisions. This is not about closing train stations. But we need to keep pushing the network forward to get back to profitability,” Watterson said. “And so I apologize in advance if this affects you as an individual.”
Southwest plans to release an updated schedule on Wednesday for flights on sale through June 4. The airline said Watterson's video was a part of a routine video series in regards to the company's initiatives.
Southwest has no plans to announce furloughs but could reduce its presence in certain cities and employees could move to other locations, in response to an individual acquainted with the matter. The company said the airline wants to scale back costs and give attention to profitable flying.
Other providers like JetBlue have cut routes this 12 months to make use of aircraft on flights that generate higher revenue.
Southwest will provide more details on its initiatives and route changes at an investor day at its Dallas headquarters this Thursday.
Elliott pushed for a leadership change on the airline and criticized Southwest management for not doing enough to enhance the corporate's bottom line. Earlier this month, Chairman and former CEO Gary Kelly said he would step down after the airline's shareholder meeting next 12 months.
The news was previously reported by industry blog View from the Wing.
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