Subhi Agrawal
On Thursday, Southwest Airlines executives presented their profit-boosting strategy to Wall Street, featuring extra legroom seats in 2026, assigned seating, international partnerships, and overnight flights. This plan aims to address pressure from activist investor Elliott Investment Management, which is calling for leadership changes.
Southwest Airlines Announces $4 Billion Earnings Plan
Southwest announced that its three-year plan is expected to generate an additional $4 billion in earnings before interest and taxes by 2027.
Southwest shares jumped nearly 10% in early afternoon trading after the airline raised its third-quarter revenue forecast and announced a $2.5 billion share buyback. The company now expects unit revenue to rise by up to 3% compared to last year, a shift from its earlier estimate of a 2% decline, partly due to rebooking passengers affected by July’s CrowdStrike outage.
Extra legroom seats are not expected until 2026, as Southwest needs approval from the Federal Aviation Administration and time to modify its aircraft, according to a slide from Thursday’s investor presentation. The airline projects that the new cabins, where around one-third of the seats will offer additional legroom, will contribute $1.7 billion to earnings before interest and taxes by 2027.
The new seats will offer at least 34 inches of legroom, an upgrade from the standard 31-inch seat pitch, according to Southwest. The airline has also faced pressure to abandon its open seating policy and frequently hectic boarding process.
“Looking at lapsed customers, the seating and boarding process is the number one reason they haven’t returned to Southwest,” said Southwest’s chief commercial officer, Ryan Green. “We were struck by how clear the message was. There is an absolute need for us to evolve our model to better meet customer preferences,” as reported by NBC News.
Southwest Airlines to Reduce Atlanta Operations
On Wednesday, Southwest informed staff that it plans to scale back its operations in Atlanta next year, potentially reducing over 300 flight attendants and pilots based in the city as part of its efforts to lower expenses.
On Thursday, the airline announced the addition of Bob Fornaro. Southwest has a long-standing relationship with Fornaro, who served as CEO of AirTran, the airline Southwest merged with in 2011, and later worked as a consultant for Southwest following the merger.
The Dallas-based airline has experienced nearly 50 years of profits in an industry characterized by volatility.
However, pressure has increased on Southwest’s CEO Bob Jordan and other executives in the years following the pandemic, as costs have risen and global travel has rebounded. Competitors have intensified their focus on premium offerings, such as luxurious lounges and more spacious seats, to attract high-spending customers.
Southwest Airlines Expands Offerings
Southwest has also evolved by offering longer flights, including routes to Hawaii, as customers increasingly demand more perks, comfort, and technology, according to the airline’s executives.
Southwest has backed Jordan despite Elliott’s calls for his replacement, which did not immediately respond to the airline’s plan presented on Thursday.
“We have demonstrated that willingness time and again through our attempts and engagement, but time and again, Elliott has demonstrated little or no interest in collaborating with Southwest on how to deliver more shareholder value, focusing instead, as evidenced by their most recent letter and recent action, on tactics and on gamesmanship,” Jordan stated, reported by NBC News.
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