Before Elliott Capital’s near-$2 billion investment, Southwest was already talking up changes to offer more premium products that customers would pay more for. There’s been a trend towards premium, and also long haul international, both of which the airline has been unable to take advantage of. Their product and route network haven’t aligned with what customers have most wanted to buy.
There are unconfirmed reports that seem to suggest how Southwest Airlines intends to handle redeye flying, assigned seats, and a new extra legroom section of their aircraft.
The airline would certainly issue a denial because these plans aren’t finalized in the sense that they could change, timelines could shift, and they have not been announced yet. Announcements are expected at the airline’s fall Investor Day. Consider this a work in progress, though it’s expected that the final version will fall along these lines.
Love Cabin would be extra legroom seats at the front of the aircraft. This will entail taking planes out of service to accommodate reconfiguring cabins. It’s possible that adding extra legroom seats wouldn’t reduce the number of seats per aircraft. Currently Southwest offers more legroom than standard economy compared to Delta, American or United. They do not advertise their legroom advantage versus competitors. Regular coach seating could get tighter.
Blocked middle seats? Southwest could offer blocked middle seats for sale in Love Cabin, along the lines of Frontier, where the airline sells a seat block to both the aisle and middle seat passenger as an option. That gives them not just extra legroom but extra width as well. And the opportunity to sell that middle seat block twice, combined with Southwest’s lower than industry average load factors, could mean a boost to revenue compared to trying to sell that seat. It is not clear how firm this is in the airline’s plan.
Redeye training for crews by end of summer to allow for limited redeye flying over the Thanksgiving and Christmas holidays. New union contracts now provide for redeye operations, though there are also technical system issues that need updating and validating. Southwest, in the past, has had to reset their systems each night in the middle of the night. Also, reportedly “there is a crew software system that also needs to be upgraded first.”
Basic economy I’ve heard several reports that the airline is working on a replacement for their cheapest Wanna Get Away fare. Presumably these passengers would board last and have last choice of seats. In Enilria‘s version, they’d get access to seat assignments (if assigned seats are offered throughout the cabin, not just the Love Cabin) or boarding order only an hour prior to departure. Two free checked bags are so baked into Southwest’s value proposition that this could remain, although I’ve heard it both ways. There could be change restrictions introduced.
Enilria also reports that Southwest has updated its revenue management system “in recent days.” They’ve talked about an upgrade for months, and I assumed it was already in place, but they blamed their dismal second quarter revenue guidance update on their inability to adjust revenue to the current demand environment. The new system prices based on origin and destination city, rather than based on availability for each leg of a trip. This will take time to tune.
I think that basic economy is a mistake for Southwest. Their entire brand – which has tremendous value – is predicated on its democratic experience. Southwest’s stock is still heavily priced by the market, trading at outsized multiples compared to other airlines even with its current challenges. Making Southwest more like the rest of the industry, which trades around six times earnings, doesn’t seem like a path towards turning around investor returns.
However offering premium products and partnering with international airlines both seem like strong opportunities for the airline, and keeping planes in the air longer does as well. Their costs have grown substantially, and they have a revenue problem, so eking out incremental revenue against which to spread fixed costs makes sense. So does giving consumers options to buy things that they want.
As much as I’d hate to see Southwest’s generous seat pitch go, it’s not something that they advertise or that most customers realize. They haven’t been leveraging this costly arrangement to their benefit, although customers will certainly notice the difference once it’s gone. I will lament the change but it makes sense for the airline to monetize their seats rather than ‘giving away’ the extra benefit that not every customer values in terms of higher cost. The airline is likely leaving money on the table with its current generosity.
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