Southwest Airlines warns of ‘difficult decisions’ to restore profits

Southwest Airlines Co. has warned employees that it will announce some tough decisions in coming days under a plan to restore profits and help fend off changes being demanded by activist Elliott Investment Management.
Steps the carrier has already announced, including ditching a 50-year history of not assigning seats, offering a premium product and beginning red-eye cross-country flights, aren’t sufficient to improve its finances to the extent needed. That’s driving plans to eke out more revenue through changes to its route and flight network, Chief Operating Officer Andrew Watterson told employees in a video.
“There are some difficult decisions coming as well,” Watterson said in the video, a transcript of which was obtained by Bloomberg News on Saturday. “Not city closures. But you know, bigger changes for some cities,” he said in the Sept. 19 video.
“I apologize in advance if you as an individual are affected by it,” Watterson told employees. He didn’t offer any details on the pending moves. Southwest will release a new flight schedule Sept. 25 that should include network changes.
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The video is part of a regular series of explanatory presentations that Watterson sends to workers, Southwest said Saturday.
The airline is set on Sept. 26 to detail steps it has already disclosed, like assigned seats, and will unveil new steps during an investor day in Dallas. There’s a lot on the line, with Elliott moving to oust Chief Executive Officer Bob Jordan and to remake Southwest’s board with its own nominees.
“We’re trying to get more out of what we already have, but getting our costs under control is not going to be enough, because we’re not going to do this on the back of employees or customers,” Watterson said. “Therefore, it has to be on the revenue side that we make the traction to get our profitability and equation balanced.”
Elliott has said Jordan and Chairman Gary Kelly have refused to adapt the airline’s business model to acknowledge consumers’ demands for more premium products. Southwest announced Sept. 10 that Kelly agreed to step down after the carrier’s annual meeting next spring and that six directors will resign after the November board meeting. The company will name four new independent directors at that time.
The carrier already has changed its ads to reach younger consumers and added new channels to distribute its fares, like Google Flights and Kayak, Watterson said. It’s trying to fill seats left vacant in part by business people who are not traveling as often as they did before the pandemic.
The video was reported earlier Saturday by the View From the Wing travel blog.