Southwest Airlines to end its brand-defining open-seating policy. Will it work?
Southwest to offer assigned and extra-legroom seats to attract premium travelers
Some analysts expect changes to contribute 95 cents a share to earnings next year
Elliott Management demands new leadership, calling changes 'too little, too late'
Pivot on strategy runs the risk of sparking backlash among Southwest fans
By Rajesh Kumar Singh
CHICAGO, July 29 (Reuters) -Southwest Airlines' LUV.N plan to eliminate open seating is one way for the company to raise much-needed revenue, but it comes with the risk of alienating loyal customers.
The unusual practice of letting passengers choose their own seats once they board the plane was created by Southwest's egalitarian-minded founder, Herb Kelleher, and has been central to the airline's brand image for more than 50 years.
But the feature is about to end, torpedoed by disappointing earnings and share performance since the pandemic and pressure from activist investor Elliott Management. The Dallas-based airline last week announced it would pivot to assigned seating instead. It plans to share more details at its investor day in September.
The company also plans to offer seats with extra legroom - yet another departure from Kelleher, who disliked dividing airline seating into different classes of service. Southwest said the new cabin layout will require approvals from the U.S. Federal Aviation Administration and is expected to be available for bookings in 2025.
The lack of assigned and extra-legroom seating has been one of the biggest obstacles to Southwest's ability to attract premium travelers, said Henry Harteveldt, founder of travel consultancy Atmosphere Research Group.
"As a business, you always want to give your customers a reason to pay you more," he said.
Investors and analysts say the company had little choice but to evolve. Shares have lost nearly half their value in the last three years, during a time when the S&P 500 index .SPX has gained 25%. The company's trailing price-to-earnings ratio is above 33, far exceeding the industry median of 4.86, and just two analysts of 18 have a "buy" rating on the stock, according to LSEG data.
Southwest needs new high-margin revenue streams to offset cost pressures and boost profit. Its operating margin declined to 0.2% in the first half of this year from more than 13% in 2019.
Analysts at Raymond James expect the changes to contribute 95 cents a share to the airline's earnings next year. Rivals such as Delta DAL.N, United UAL.O and Alaska Airlines ALK.N have been relying on big-spending premium travelers to protect their profits.
Last week, Southwest CEO Bob Jordan called the change a "strategic transformation" that could generate more than $1 billion in annual revenue and broaden the airline's appeal.
Analysts say Southwest's success hinges upon its ability to market and sell the changes and break in to a market it has never served before.
"Expectations should be tempered that assigned seating is a lightswitch change for Southwest," said Conor Cunningham, an analyst at Melius Research.
Elliott Investment Management did not see it that way either, dubbing the changes "too little, too late," reiterating its demand for new leadership. The firm is trying to oust CEO Jordan and board chair Gary Kelly, saying the company needs fresh perspectives.
Last Thursday, Jordan said while the company wanted to hear Elliott's feedback, the activist investor had not shown willingness to engage in any meaningful conversations.
Southwest considered abandoning open seating and switching to assigned seating in 2006 but dropped the idea after tests showed the move might hurt its efficiency and increase boarding time by 1 to 4 minutes. The switch could also drive up labor costs as Southwest could need more agents for boarding.
How customers will respond is unclear. Jordan said the company surveyed tens of thousands of customers, with many citing its open seating policy as the No. 1 reason for deciding to stop flying with Southwest and choose a rival.
Some travelers wondered if the company would also do away with its policy of no fees for bags. Jordan has said the company has no plans to start charging for bags, adding that the airline's data shows that a no-bag-fee policy is the No. 1 reason customers choose to fly Southwest.
To some customers, though, the end of open seating is a major blow to the airline's uniqueness.
"Southwest, I fear you are losing your differentiation with this choice," Robb Winger, who called himself a Southwest "loyalist," wrote on LinkedIn.
Southwest shares have largely lagged the S&P 500 passenger airlines index https://reut.rs/4d26jfI
Reporting by Rajesh Kumar Singh in Chicago, Additional reporting by Shivansh Tiwary in Bengaluru, Editing by Matthew Lewis
संबंधित परिसंपत्तियाँ
ताजातरीन समाचार
अस्वीकरण: XM Group के सत्व केवल निष्पादन वाली सेवा और हमारी ऑनलाइन व्यापार सुविधा में पहुँच प्रदान करते हैं, ताकि व्यक्ति वेबसाइट पर या उसके जरिए उपलब्ध सामग्री को देख सके और/या उसका उपयोग कर सके। इसका प्रयोजन इसे बदलना या विस्तार देना नहीं है, न ही वह इसे बदलता या विस्तार देता है। इस तरह की पहुँच हमेशा ही निम्नलिखित के अधीन रहेगी: (1) नियम और शर्तें; (2) जोखिम चेतावनियाँ; और (3) पूर्ण अस्वीकरण। इसलिए ऐसी जानकारी सामान्य सूचना से अधिक कुछ भी नहीं है। विशेष रूप से, कृपया इससे अवगत रहें कि हमारी ऑनलाइन व्यापार सुविधा की सामग्रियाँ न तो किसी चीज का अनुरोध करती हैं, न ही वित्तीय बाजारों में प्रवेश करने की पेशकश ही करती हैं। किसी भी वित्तीय बाजार में व्यापार करने के साथ आपकी पूँजी को उल्लेखनीय जोखिम है।
हमारी ऑनलाइन व्यापार सुविधा में प्रकाशित सभी सामग्रियाँ शैक्षणिक/सूचनात्मक प्रयोजनों मात्र के लिए हैं, और इनमें वित्तीय, निवेश टैक्स या व्यापार सलाह और सुझाव नहीं हैं - न ही ऐसा समझना चाहिए कि इनमें ये सब हैं; न ही इनमें हमारी व्यापार कीमतों का अभिलेख है; न ही इनमें किसी वित्तीय उपकरण में लेन-देन करने का निमंत्रण या अनुरोध है; न ही ये आपको अवांछित वित्तयी प्रोमोशन पेश करती हैं।
इस वेबसाइट में मौजूद कोई भी तृतीय पक्षीय सामग्री, तथा XM द्वारा तैयार की गई सामग्रियाँ, जैसे: अभिप्राय, समाचार, अनुसंधान, विश्लेषण, कीमतें और अन्य सूचनाएँ या तृतीय पक्षों की साइटों के लिंक, "जैसा-है-वैसा" के आधार पर बाजार के बारे में सामान्य टिप्पणी के रूप में उपलब्ध कराई गई हैं, और वे निवेश हेतु सलाह नहीं हैं। जिस हद तक कीसी सामग्री को निवेश अनुसंधान मान लिया जाता है, उस हद तक आपको ध्यान में रखना होगा और इसे स्वीकार करना होगा कि वह सामग्री इस उद्देश्य से और निवेश अनुसंधान की स्वतंत्रता को बढ़ावा देने के लिए कानूनी आवश्यकताओं के मुताबिक, तैयार नहीं की गई है, और इसलिए उसे प्रासंगिक कानूनों और विनियमों के तहत विपणन संप्रेषण माना जाएगा। कृपया सुनिश्चित करें कि आपने गैर-आश्रित निवेश के बारे में हमारी सूचना को पढ़ और समझ लिया है। पीछे दी गई जानकारी के बारे में अनुसंधान और जोखिम चेतावनी यहाँ उपलब्ध है।
