Southwest, the “legacy LCC,” part 2: Bloated labor expense, difficult fleet strategy result in uncompetitive cost structure

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By Judson Rollins


May 20, 2024, © Leeham News: Southwest Airlines was founded on the principles of high employee productivity and low labor costs. But 53 years after beginning operations, its labor cost as a percentage of expenses — and per seat-mile — is now the highest among US airlines.

Boeing 737 MAXes parked after the 2019 MAX grounding. Source: Getty Images via AFP.

LNA studied Southwest's and its US competitors' 2023 annual reports to comprehensively understand their relative profitability. The resulting picture is less than flattering to the Dallas-based carrier. Southwest is increasingly a “legacy LCC,” with LCC-like unit revenue but a legacy cost structure.

  • Labor costs are dramatically worse than legacy or LCC competitors.
  • Fleet and route strategy are crimped by overreliance on the Boeing 737.
  • Southwest’s insular management team and culture may be its greatest obstacle to business model innovation and continued profitability.

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