DALLAS — Southwest Airlines Co. has generated constant headlines in recent weeks, both because of major changes initiated by the company and concerns from some corners about its strategic direction.
Throw route changes, leaked video transcripts and a turbulent stock price into the mix, and it's clear Southwest CEO Bob Jordan and his senior leadership team have their work cut out for them.
Here’s a rundown of recent events that have brought the nation's third-largest domestic carrier to this pivotal point ahead of the all-important holiday travel season.
What is Southwest Airlines’ ‘transformation plan’?
Jordan has described this moment in the company’s trajectory as a "critical reflection point." He laid out during Investor Day on Sept. 26 a three-year plan meant to boost profits. The plans will create changes of varying significance, ranging from additional legroom for passengers to a $2.5 billion share repurchase program meant to improve the company’s financial clout.
As part of his plan, Jordan said Southwest (NYSE: LUV) also expects to generate $4 billion of "incremental pre-tax earnings" and wants to cut $500 million in annual costs by 2027.
Why are such changes needed?
Southwest has had a rough few years. The company’s share value has declined around 40% since the start of 2020 when pandemic shutdowns and travel challenges impacted all airlines. A travel meltdown in December 2022 caused by a winter storm led to the cancellation of thousands of flights and impacted more than 2 million passengers.
Jordan received $9.3 million in total compensation in 2023, up $3.97 million from the previous year — a sore point for many of Southwest's critics given the company's bumpy flight path. Southwest also has drawn scrutiny for the pace of its innovation and adoption of technologies to meet passengers’ evolving demands. Adding to those struggles, the airline has also been affected by delivery delays by its major supplier, The Boeing Co. (NYSE: BA).
Southwest had total operating revenue of about $26.1 billion in 2023, up from $23.8 billion in 2022. But net income last year was $465 million, down from $539 million in 2022 and $977 million in 2021.
How has Southwest stock responded to the recent news?
Southwest's stock rose 5.4% on Investor Day to $29.93 a share. Shares traded in about the same range the following day and then rose Oct. 2 to more than $30 a share on reports that director Rakesh Gangwal paid $106.7 million to acquire 3.6 million Southwest shares.
Gangwal, a billionaire and co-founder of IndiGo, India’s largest airline, is a former executive of US Airways Group, Air France and United Airlines. He joined Southwest’s board in July.
Southwest shares closed Oct. 4 at $31.25, up about 10% since closing at $28.39 on Sept. 25. The Oct. 4 closing price gave the company a market capitalization of about $18.7 billion.
What do outsiders think of the Southwest's plans to improve?
Reviews have been mixed. Activist investor Elliott Investment Management LP, a Florida-based hedge fund run by billionaire Paul Singer, slammed the plan unveiled at Investor Day. Elliott, with an 11% stake in Southwest Airlines, suggested Southwest's current leaders aren't capable of successful implementation.
However, some Wall Street analysts later said the plans, if successful, could lead to real improvement for Southwest.
But, as one analyst said, the airline seemed "left with little choice but to impress" due to months-long pressure from Elliott.
How will Southwest's customers or employees be affected?
Southwest executives have been steeling employees for tough times ahead and the company plans to reduce headcount as part of its cost-cutting — Jordan expects the airline to end 2024 with about 2,000 fewer employees, with another decrease expected next year. The airline is set to scale back or cut operations at numerous airports, including Hartsfield-Jackson Atlanta International Airport, which is the busiest airport in the world, and Chicago O’Hare International Airport.
As of last year, Southwest Airlines was Dallas' fourth-largest employer with 14,618 workers, according to city records.
What else is coming soon?
Under pressure from Elliott, Southwest Airlines also recently announced that Gary Kelly, former CEO and current board chairman, will retire from the board after the company's 2025 annual meeting in the spring. Six other members of the 15-member board will also retire in November.
Yet Elliott has shown no indication it will drop its push for a bigger shake-up. The hedge fund has implied it will soon call for a special meeting of shareholders, where it hold a vote on a new slate of proposed board directors.
Meanwhile, Southwest is gearing up for the major operations it has outlined. It will launch its first red-eye flights next year and begin selling assigned seats in the second half of 2025, with its first flights operating with the new model in the first half of 2026. Additionally, Southwest will launch its first partnership with an international carrier, Icelandair, will launch in 2025 through the Baltimore-Washington International Airport.
