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By Chris Sloan

Sept. 30, 2024, © Leeham News: Southwest Airlines outlined significant moves in its quest to return to sustained profitability at its investor day on September 26 in Dallas. Widely reported revenue and financial initiatives include assigned and premium seating, network realignment, capacity growth cuts, and staffing reductions.

Billed as Southwest Even Better, the plan is the most transformational program in the company’s 53-year history, according to Chief Executive Officer Bob Jordan. “The plan includes a robust set of tactical and strategic initiatives and elements uniquely available only to Southwest Airlines. The plan is capital efficient and supports achieving our financial goal of ROIC [Return on Invested Capital], well above our cost of capital,” he said. Yet, he acknowledged that recent financial performance is not up to anyone’s expectations. “Our model is not broken, but it needs continued calibration and enhancement.” By 2027, the plan is expected to add approximately $4 bn in cumulative incremental earnings before interest and taxes (EBIT).

Jordan pointed to external factors as a significant culprit, notably Boeing. “It's no secret that Boeing's delivery delays have created significant issues for us, making it very difficult for us to run a business. Boeing has delivered very few MAX aircraft on time, and we are still waiting on the MAX 7 certification.” Though compensation agreements remain confidential,  “Past financial issues caused by Boeing delivery delays and other Boeing issues have largely been resolved through the application of credits on future deliveries," said Jordan.

Southwest is taking dramatic steps to mitigate “operational risk” by reducing hiring and cutting annual capacity growth to 1-2 percent through 2027. “We expect production issues at Boeing and issues related to the (Pratt & Whitney) Geared Turbofan engine to continue to constrain industry growth for years to come,” Jordan noted.