BusinessJun 10, 2024
Activist Investors Could Be Coming For Southwest’s Famous Open Seating and “Bags Fly Free” Policies
Aviation Strategy
Noah Weidner
Discover
Southwest liberated American airports from the tyranny of high fares, bag fees, and seat assignments — but those same features that made it an American mainstay are causing its unraveling. In the 1990s, Southwest won over customers with discount fares, earning the love of regulators who dubbed it “the Southwest effect” for its industry impact. However, after thirty years, the airline famous for doing things differently is beginning to blend in with the crowd.
Deep freeze: While Southwest might be America’s most popular airline, its financial performance paints a different picture. In 2022, outdated infrastructure led a holiday crisis, resulting in thousands of flight cancellations and billions in losses. Since then, the airline, operating solely with Boeing 737s, has struggled to meet growth expectations due to limited deliveries.
Facing pressures for change, Southwest must act swiftly — or activist investors will do it for them. This past weekend, Elliott Management acquired an 11% stake in the airline, intending to bring in external experts to beef up revenue by introducing charges for bags, seats, and other services.
This means war: Southwest is already evaluating its operations, but Elliott’s aggressive approach clashes with the company’s culture of internal promotion, exemplified by CEO Robert Jordan and Chairman Gary Kelly. If a compromise isn’t reached, Southwest might find itself engaged in a lengthy and costly proxy battle with its new largest shareholder.
