Southwest Dis-Effect

Photo copyright Southwest Airlines

As I have stated in previous posts regarding Southwest Airlines, this isn't your Dad's Southwest. The vaunted "Southwest Effect" of lore no longer exists, and hasn't since the merger with AirTran. Now with the activist investor group Elliott Investment Management installed firmly in the Southwest boardroom, they're on the warpath for more profits from the chronically slow-to-change, plodding Dallas-based carrier.

Photo Copyright Southwest Airlines

Anywhere you look around Southwest (except in its headquarters hallways and open spaces where its once-quirky and fast-paced history resides) the only relic from the past are the uniforms, although I'm betting those will get changed out eventually. Southwest has already announced assigned seating, premium seating, and brought back on a more full and permanent scale, red-eye flights.

But the biggest and most loudly opposed change is the free checked bags policy. Since the airline began in 1971, passengers were always allowed free checked bags. It was part of the foundation and backbone of Southwest. Back then though, all airlines did that. Charging for checked luggage didn't really start until PeoplExpress came on the scene in 1981, but didnt catch on in the US until the mid-2000s when airlines began "un-bundling" extras like checked bags, in-flight services, carry-ons, etc. During all this time, Southwest had stuck to its guns and kept on with free checked bags. It became their mantra and advertising cornerstone. One more thing Southwest was different from compared to the Big 3, and to the LCCs (Low-Cost Carriers) offering seats at bin bottom prices. This (along with getting lucky on several fuel-hedging programs) kept them in the leader spot amongst the LCCs. I have to admit, it was the sole reason why I took them several times in the last few years.

Ever since Elliott got control, I hear the gnashing of teeth from masses of employees, passengers and random curiosity cravers about how Elliott is going to destroy Southwest, how they're just another investor shark like Carl Icahn, or "airline destroyer" like Frank Lorenzo (which I disagree with), and that Southwest is heading right for Chapter 11 bankruptcy or worse, total shutdown. Calm yourselves, emotions never pan out when clear, rational thinking are far easier to digest.

First off, that's not how Elliott works, nor any activist investor group, if I'm being honest with those that I am familiar with. Also, I wouldn't be so quick to lump Elliott in with the likes of a Carl Icahn or Ivan Boesky or other such 1980's junk bond raider. The type of activism that Elliott employs (for the most part) is akin to how Kirk Kerkorian ran MGM or Western Airlines back in his day. Kerkorian got people into MGM and Western who knew what to ask for, how to get it, and implement it for the betterment of the entire company. Were there controversial moves along the way? Absolutely. You can take that to the bank. If said changes worked, and the company grew out of its predicament, Kerkorian (and now Elliott in this case) stayed. If they didn't, Kerkorian steadily shrunk his positions in the companies until he was out. I have a hunch, this is also the same type of outcome we'll see with Elliott.

Corporate Raiders like Carl Icahn was FAR more heavy handed. The companies he tore up in the 1970's through the turn of the Century were torn up piece by piece and those chunks then sold off (think TWA's entire network out of London/Heathrow, sold to American Airlines, or XO System's Wired Technology Division) solely for the short term cash profits for the shareholders and of course, himself.

Also, I wouldn't lump Elliott in with Frank Lorenzo and Texas Air either. Lorenzo, no matter how reviled he is to a lot of oldtimers in the industry, in hindsight ended up saving Continental Airlines not only from itself, but from the grave in the early 1980's, despite all the union turmoil and chest-beating. When his Texas Air bought Eastern Airlines out and cannibalized it, it was for the benefit of Continental, and also to fund the eventual war with Eastern's overfed machinists union. That years-long ego trip by the EAL peasantry cost them their jobs and livelihoods. That is not what's happening at Southwest. There has been a large layoff, yes, but when you consider that Southwest is a tad overstaffed for its size and network, this was more of a right-sizing of staffing levels. Like what America West Airlines did in 2003 by axing almost 94 administrative positions from their Tempe, Arizona Headquarters (of which I was one of the unlucky ones).

All of the changes that have been announced thusfar will no doubt make Southwest a more competitive entity in today's marketplace. Sadly, it has come with a percentage of high-value flyers jumping ship (1 & 2 million milers, corporate travelers with contracts that make them book the highest Business Select fare, etc.). Will they come back? Only time will tell, but loyalty just doesn't seem to have the cachet it once had, especially in the airline industry.

Photo Copyright Frontier Airlines

Right now, there's a LOT of noise from all sides about these changes, and competitors are noticing. Especially from a certain Frontier Airlines out of Denver. They are taking massive broadside shots at the changes in Southwest's checked bags policy by offering (for a limited time of course) free checked bags, free carryons, free assigned seats, AND free flight changes if travel begins by May 28, 2025 (coincidentally, the day that Southwest institutes its new policy). I'd like to think of this as poetic justice, since it WAS Southwest that invaded Denver (and abandoning Salt Lake City in the process, which it built up into a sizeable focus city after the merger with Morris Air in 1994) exactly 24 hours after Frontier filed bankruptcy back in 2005. Sour grapes, perhaps?

Will we see other airlines take potshots at Southwest's expense? Possibly. I wouldn't be surprised to see the gargantuan Delta or long-time Dallas-based rival American Airlines start sweetening offers up to entice people to jump the Southwest ship. Will it affect my thinking when booking a flight domestically? Not so much. I've only used them when I couldn't find a decent schedule on my beloved Alaska Airlines or with Frontier or United.

The Travel Genius' Opinion

I'm with a lot of people in seeing that Southwest is now becoming just another airline in the United States, but this isn't the end game like so many are thinking it is. Is it a drastic, possibly draconian change to the very foundation and fabric of Southwest? Yes. Very much so. Will it kill Southwest? Hardly. In the short term you're going to see their stock price hemorrhage a bit as the changes take effect and take hold, and everything settles down for both the airline and their Board of Directors (which was also slashed by two seats) new ways of doing things. Long term...well, your guess is as good as mine (I won't begin to speculate), but the Southwest of old, is by and large gone for good. What once was mislabeled as The ORIGINAL Low Fare Airline (sorry Southwest, that was PSA in California), is now just another Boeing 737 to get you from one point to the other.

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