Southwest Airlines (LUV) announced significant changes, including plans to end open seating and offer premium seats with extra legroom, to improve financial performance under pressure from an activist investor. The airline's earnings have been hurt by delays in Boeing plane deliveries and domestic market overcapacity, leading to pricing pressure.
Southwest's outlook for the September quarter is flat to down 2% in unit revenue year-on-year, with non-fuel operating costs up 11%-13%. Despite this, shares rose 1.5%. Activist investor Elliott Investment Management is pushing for leadership changes, emphasizing the need for new perspectives.
Market Overview:- Southwest plans to end open seating and offer premium seats.
- Airline earnings pressured by Boeing (BA) delivery delays and market overcapacity.
- Shares up 1.5% following announcements.
- Third-quarter unit revenue expected flat to down 2%.
- Activist investor calls for leadership changes.
- New cabin layout expected in 2025, pending FAA approval.
- Southwest to introduce overnight flights in February.
- Compensation discussions with Boeing for delayed deliveries.
- Investor day in September to provide more details.
Southwest plans to offer premium, extended legroom seats, accounting for roughly one-third of seats across its fleet, with availability expected in 2025. The company also plans to introduce overnight flights and is negotiating with Boeing for compensation due to delivery delays. Its second-quarter adjusted profit exceeded expectations, coming in at 58 cents per share.
Activist investor Elliott Investment Management's push for leadership changes highlights the urgency for Southwest to adapt and compete in the modern airline industry. The company's upcoming investor day in September will shed more light on its strategic plans to mitigate revenue challenges and enhance profitability.
