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How Southwest Airlines lost its groove to unexpected costs and challenges

Some analysts say Southwest was so successful for so long that it grew complacent, resisting strategies that other airlines have used effectively to increase profits and win over travelers

Southwest Airlines

Southwest Airlines

NYT

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By Niraj Chokshi    Three years ago, Southwest Airlines started flying out of Bellingham, Washington, a growing city near the Canadian border, aiming to do what it had done in dozens of smaller airports — sell lots of tickets to people who have few other travel options.
Officials and residents in Bellingham, which sits between Seattle and Vancouver, British Columbia, were thrilled as the airline added new nonstop service to cities on the West Coast at affordable prices. 
“The community embraced them, and we loved having them,” said Rob Fix, the executive director of the Port of Bellingham, which oversees the airport. 
 
But the expansion didn’t work as planned. This year, facing unexpected costs and challenges, Southwest left Bellingham and a handful of other cities it had started serving during an ambitious period of growth early in the recovery from the pandemic — markets that it said were underperforming.
  The retreat was a telling reversal for Southwest. The airline’s simple strategy of providing cheap flights and good service, often at smaller airports near large metropolitan areas, was tremendously successful for a half-century, earning consistent profits as many other airlines stumbled. But its playbook is showing signs of wear, raising questions about whether it can regain its momentum. “Southwest experienced great success adhering to one business model for a bunch of years, and then the world around them changed and they didn’t really adapt,” said David Neeleman, an airline entrepreneur who sold his first company to Southwest in 1993 before starting JetBlue and, most recently, Breeze Airways.
  Some analysts say Southwest was so successful for so long that it grew complacent, resisting strategies that other airlines have used effectively to increase profits and win over travelers, like offering more premium seats and services. For years, airlines have carved their plane cabins into various tiers of service and fares. They have appealed to cost-conscious customers by offering restrictive basic economy fares while offering bigger seats and other creature comforts to affluent travelers. Southwest made some adjustments, like selling priority boarding to appeal to business travelers, but it largely stuck to how it had always done business.
  The airline’s longtime strategy of flying a single airplane model — the Boeing 737 — to reduce costs and maintain flexibility also became a liability. A quality crisis and a debilitating strike at Boeing this year have severely limited production of 737 jets. Southwest now expects to receive 20 new planes in 2024, not even a fourth of what it had expected as recently as a year ago.
  Southwest’s struggles have been laid bare in its recent financial performance. In the first nine months of this year, the company reported a profit of $204 million, far behind Delta Air Lines’ $2.6 billion and United Airlines’ $2.2 billion.
  The airline’s shortcomings made it the target of the hedge fund Elliott Management, which revealed this summer that it had amassed a 10 percent stake in the company.
  Elliott criticised Southwest for failing to control costs, eroding its once-enviable profit margins, and demanded big changes, including the firing of the company’s chief executive, Bob Jordan. The airline’s stock was sagging, and a meltdown two years ago when it canceled thousands of flights exposed weakness in its leadership and operations, the investment firm said.  Southwest accelerated a number of changes. 
In September, Jordan laid out a three-year plan that included switching to assigned seats to speed up boarding and appease customers frustrated with the current seat-yourself policy. Southwest also said it would add seats with extra legroom, which it will charge more for, and red-eye flights that let it use planes for more hours every day. The airline also added board members picked by the investment firm, and Elliott dropped its demand for Jordan’s departure. 
  ©2024 The New York Times News Service
 

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First Published: Nov 24 2024 | 11:24 PM IST

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