In current occasions, we’ve seen Southwest massively evolve its enterprise fashions, in ways in which would’ve appeared unthinkable a number of years in the past. The airline has began charging for checked luggage, has launched primary financial system, and is introducing assigned and further legroom seating.
What’s subsequent for the airline? Nicely, it feels like what we’ve seen thus far would possibly solely be the start.
Southwest “will proceed to pursue the buyer”
Sean Cudahy reviews on a chat that Southwest CEO Bob Jordan gave on the Bernstein Strategic Choices Convention on Thursday, Could 29, 2025. Jordan stated that “we aren’t stopping right here,” and said that by 2026, the airline will unveil its subsequent spherical of long run plans, to proceed evolving the enterprise mannequin.
Jordan gave some “hypothetical” examples of what the airline would possibly think about:
“For a lot of of our people that love Southwest, we are able to’t do issues, we are able to’t present merchandise, that you really want. Like a first-class. We are able to’t get you to lengthy haul worldwide locations. If a lounge is essential to you, we don’t have a lounge. I’m not predicting any of these issues, however we are going to proceed to pursue the buyer.”
Jordan additionally reportedly famous that shopper curiosity in lounges is “tremendous excessive,” and that the evolution in passenger demand “might require that you consider a distinct plane.”
As you may see, Jordan isn’t really promising something particular right here. Nonetheless, if the declare is that they’re going to “proceed to pursue the buyer,” then there’s no denying that customers need first-class, lounges, and lengthy haul flying. That in fact assumes that you simply don’t suppose that present shopper traits are some fad that will probably be altering quickly.
The extra Southwest evolves, the much less differentiated it’s
Watching Southwest’s evolution is totally fascinating. I’d argue that for all too lengthy, Southwest didn’t evolve in any respect, when it in all probability ought to have. The airline simply continued doing precisely the identical factor for thus lengthy, with out maintaining a tally of the competitors.
However now Southwest goes to the alternative excessive. The airline is eliminating nearly the whole lot that makes it distinctive, and is simply following the competitors. It’s anybody’s guess how this all performs out. To Southwest’s credit score, the airline has an enormous route community, and scale is extra essential within the airline business than ever earlier than.
On the similar time, because the airline more and more merely follows the competitors, it loses all aggressive benefits it had. Let’s be clear, Southwest doesn’t precisely have a low value construction, as its staff are paid rather well. In the event you begin to eradicate the idea of shoppers selecting Southwest over rivals because of the differentiated expertise, what does that actually go away Southwest with?
Like, if the airline begins to construct a lounge community, it’ll nonetheless solely be a fraction of the scale of what rivals provide. If the airline begins to supply first-class, it’s definitely means behind the competitors. If the airline begins to function lengthy haul flights, it’ll be means behind in getting slots and establishing partnerships, given the profitable joint ventures that the “massive three” US carriers have. By no means thoughts that Southwest’s greatest hubs aren’t essentially nice for these functions, like Chicago Halfway (MDW), Houston (HOU), and many others.
So I’m not saying that any of those particular person adjustments are dangerous, although I do suppose that while you add all of it up and alter the whole lot, that mixture is dangerous. In any case, it leaves Southwest ready the place it basically operates at an obstacle in comparison with the legacy airways, and I simply don’t see that as a profitable technique. Why would somebody fly Southwest over Delta or United?
It certain feels to me like Jordan is only a “sure man” for Elliott Funding Administration. He’s not main the airline with any type of a imaginative and prescient, apart from agreeing to no matter adjustments have to be made for him to maintain his job. At this level, I’d say Southwest has about as a lot of a method as American…
Backside line
Southwest’s CEO has urged that the airline “will proceed to pursue the buyer,” and “hypothetically,” that might embrace issues like first-class, lounges, and lengthy haul flying. Southwest has already modified the whole lot that made it distinctive, and it sounds just like the airline isn’t stopping there. The objective appears to be to mainly do the whole lot the “massive three” are doing, however with important disadvantages.
What do you make of the way in which Southwest is evolving?
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