I just thumbed through this fifty-page presentation from Elliot Investment Management that calls for a makeover of Southwest Airlines. Elliott recently took a $1.9 billion stake in the airline, and is looking to use that investment as leverage to replace the current CEO and board of directors.
Essentially, they want to remake Southwest into a clone of their competitors. In this slide taken from the presentation, they fault Southwest for not offering assigned seating, checked bag fees, and multiple classes:
While I’m not a financial analyst, I am a former high-value customer of Southwest Airlines and I have a very different opinion. Yes, Southwest needs to make improvements, but do the very opposite of what Elliott is proposing. They need to return to the formula that made them so successful and not become a clone of American or United.
Southwest’s model has been distinctly different from the other airlines, and that’s what propelled them to become the world’s largest airline, as measured by seats sold. In recent years they’ve faltered, not because of their model, but because of their failure to stay true to that model.
Southwest’s approach was simple: lots of flight options with their direct city-to-city model, low prices, on-time flights, great customer service, no change fees, and free checked bags. They also developed a simple to use website that was once years ahead of their competition. They created a unique boarding system with no assigned seating that allowed them to turn around flights quickly, improving aircraft usage. Customers trusted Southwest because they were unlike the other airlines that used deceptive pricing and had fees for changes, baggage, and even seats.
But Southwest’s prices are no longer the lowest and are often more expensive. They’ve become less dependable with more canceled and delayed flights, and their customer service is often abysmal. They’ve becoming more like the other airlines.
Up until a few years ago, I spent $15K-$25K each year on weekly Southwest flights, both cross-country and up and down the California coast. I appreciated being able to have many choices of times, being able to change flights with no penalties, and counting on them to get me to my destination on time. They were my go to airline for years. Now I avoid them when there are other options.
So what happened to cause such a change? An early warning for me was when their CEO said they would continue to fly their 737 Max 8 planes right after its first crash. He said he trusted Boeing. That was so unlike their founder, Herb Kelleher, promising to always put their employees first and customers second, ahead of any profits.
But the real change was when Southwest flights simply became unreliable. Many of my flights were delayed or canceled, and I could no longer depend on Southwest to get me where I needed to be on time. That caused me to look to alternative airlines, like Alaska, and then surprisingly discover I was able to find cheaper fares.
For a period of six months, every trip I took suffered from either canceled flights or long delays. And when one early morning flight to Savannah was canceled the night before, they simply told us to fly out a day later, rather than finding a same day option. That evening I discovered it was no longer a few minutes to reach CS, but a few hours. (While we were on hold we booked a flight on United. But then the same thing happened on our return!)
I went from one of their most loyal fans to a hater of the airline. Every now and then I give them another chance -usually when I have few other options. But so far, they haven’t delivered. An upcoming flight in late July that we booked on Southwest to avoid a connection, was just canceled, requiring a new booking with a connecting flight.
Besides improving their operational efficiencies, Southwest could find ways to differentiate themselves even more, such as providing free WiFi, automatic text messaging alerts of their flight status, and a better effort to accommodate passengers on canceled flights.
And those frequent trips up the CA coast? While we go less often, when we do we drive instead of flying. More reliable, less uncertainty, and sometimes just as fast.
