For decades, the company made money even as other airlines stumbled and went bankrupt. But the carrier has struggled to adapt to changes in air travel.

By Niraj Chokshi

Reporting from Bellingham, Wash., Dallas and New York

Nov. 24, 2024, 5:02 a.m. ET

Three years ago, Southwest Airlines started flying out of Bellingham, Wash., 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 criticized 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.

In response, Southwest accelerated a number of changes.

In September, Mr. 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 Mr. Jordan’s departure.

Southwest declined requests for an interview with Mr. Jordan for this article, but he told investors last month that he and the company were aware that they needed to make big changes. “It’s all eyes forward here as we work to set up Southwest for success for generations to come,” he said.

Even before Elliott came along, Southwest had started making some upgrades. In 2022, it unveiled plans to install power outlets in every seat, faster internet service and larger overhead bins. This year, it finally allowed flights to be listed on third-party search engines like Google Flights and Kayak.

An airline’s evolution

While its recent profits have lagged, the airline had an unrivaled 47-year streak of annual profits until the pandemic brought travel to a standstill. It lost money in 2020, like the rest of the industry, but has reported profits each year since.

Southwest is the only one of the four largest U.S. airlines to have never filed for bankruptcy protection.

Today, Southwest carries more passengers than any other U.S. airline and operates more flights than any airline in the world except for American Airlines. Travelers have ranked its economy class above any other in North America for three years running, according to J.D. Power.

For decades, Southwest thrived by adhering to a simple model of low fares and good service, with a healthy dose of irreverence.

The airline started flying in 1971 out of Dallas Love Field, where Southwest has remained for decades despite the opening of the much-larger Dallas-Fort Worth International Airport just a few years after the company’s founding. Early on, the airline connected Dallas to Houston and San Antonio, pitching itself as an alternative to driving. But it quickly grew into a disruptive force.

Braniff International, which also flew from Dallas, tried to undercut Southwest in its early days by offering $13 fares. Southwest matched those prices at a loss, but also offered a giveaway to customers who paid the full $26 fare: a bottle of liquor. That appealed to many business travelers on company expense accounts and helped Southwest stay viable.

Over the years, the airline would often start flying to small airports overlooked or poorly served by other airlines. In what became known as the “Southwest effect,” the airline’s entry would stimulate demand and pressure other companies to reduce fares. In the 1990s, it became one of the first U.S. airlines to sell tickets directly to customers online.

Southwest’s success inspired imitators, and low-fare airlines began sprouting up around the world.

But its model has been under pressure for years. As it grew, it started operating at airports where maintaining low costs and frequent flights was more difficult.

Southwest now flies to Hawaii, for example, which has required it to put pilots through extra training and its planes through additional certification to fly over the ocean. It started flying international routes. And it moved into congested airports like LaGuardia in New York City.

“One of the things that made it magical also limited its potential growth,” David Vernon, an analyst at Bernstein, an investment firm. “That ability to move with high frequency, there’s only so many places you can run that model.”

The airline became famous early in its history for getting planes in and out of gates quickly — often referred to as the “10-minute turn” — reducing the time planes spent on the ground without passengers. Today, it takes about 49 minutes for Southwest to turn a plane around, which is still faster than the other major U.S. airlines, according to data Southwest shared with investors in September.

The airline has said it aimed to speed up its plane turnarounds by five minutes. Among other things, the company says, it will digitize more paperwork and use technology to more quickly move bags between connecting flights. Southwest is even experimenting with adding music that plays at 120 beats per minute to encourage customers to move faster as they board. These and other changes should free up flying capacity, according to Southwest.

In Bellingham, population 97,000, customers and airport officials are still pining for the airline.

One of them is Anneke Palmerton, who works for the local school district and as a wedding officiant, a job that requires frequent travel.

The Bellingham airport was already served by Allegiant Air and Alaska Airlines, but Southwest’s daily flights made it easier to visit her brother in California and her parents in Arizona.

Executives at Bellingham’s airport said Southwest’s flights had been regularly packed. But the airline said it had left Bellingham and a few others in August because those markets were underperforming its expectations at a time when costs were particularly high.

When Ms. Palmerton learned that Southwest planned to leave, she started a Change.org petition to try to persuade the airline to reconsider. She gathered thousands of signatures, to no avail.

“Everyone is still so upset about it,” Ms. Palmerton said. “It’s like a breakup.”

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376117)

Montana

2h ago

So, the company made a profit last year, didn't file for federal assistance during COVID, carries more passengers than any other U.S. airline, and has top-ranking economy class service. How does this describe a company "stumbling" or facing a crisis? Last-stage Capitalism is so frustrating: we can't just succeed, we must ABSOLUTELY DOMINATE, or else we have failed spectacularly.

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376146)

Oakland CA

2h ago

Customer loyalty? SWA should fix the preboard parade of people perfectly capable of walking on plane. It also would help to add some longer nonstop flights and fewer two stop itineraries. The answer is not to become just like the legacy carriers.

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376148)

Tim

H-town

2h ago

It's a shame that capitalism ruined a good airline. The constant "need to grow," merely to satisfy no one other than stock analysts and bankers, ruins more companies than helps consumers.

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376149)

Half Moon Bay, California

2h ago

Southwest's traditional business model -- where everyone has the same opportunity to have the same seats and the same service at the same price -- seems designed for an America that sadly has passed. Today, in a world of extreme inequality, it's all about selling privilege to the wealthy. Wouldn't it be nice to see a future America where the Southwest's model, of equal treatment for everyone, actually works?

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376150)

North Yarmouth, Maine

2h ago

@Heather Along those lines, the article states:

"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."

These numbers are meaningless without context. How do those nine months of profit compare to recent years for Southwest? And does Southwest typically have about one-tenth the profits of Delta or United, or are the first nine months of this year an aberration?

If both sets of numbers are in line with typical years, yeah, where's the crisis?

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376152)

Colin

Utah

1h ago

@JM Southwest is notable precisely because it *doesn't* nickel-and-dime passengers. It still allows 2 free checked bags for all customers and doesn't charge change or cancellation fees (which, for many years, was a unique policy amongst the airlines). Spirit, Frontier, and Allegiant are the ones that have a seemingly endless barrage of fees that inflate their deceptively low base fares.

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376153)

Sai Ra

India/USA

1h ago

Times Pick

And the hedge funds finally came for the Southwest. There was a time when I had to fly frequently for my work with up to 10 oversize and overweight bags. Southwest with their straight forward baggage fee and ticket cancellation policies was my knight in shining armor. Thank you SW for all the wonderful service you have provided. I still prefer to fly with you over anyone else.

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376155)

e

sw

1h ago

I used to only fly sw. had the credit card and all. I am done with them for the moment.

Together with the constantly late and cancelled flights, my biggest problem is the flight attendants not enforcing the rules and leaving it up as a free for all among the passengers. No polite way to say it, but passengers in SW these days aren't exactly a wholesome bunch. So i choose to pay a lot more to feel comfortable and not feel like im going to get into an altercation with a drunk who 10 years ago would have been on a greyhound.

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48376156)

Once that ended, they kind of slunk back with everyone else. It has always been SPS for the business traveler which, even post Covid, is a massive piece of it for UA and AA.

They have done some odd things. They essentially had a monopoly at MDW and yet bought more gates at Terminal 5 of ORD which is a major pain in the ass to deal with and get to. Nobody cares about the pain when they are flying to Paris and getting there hours before. It sucks bigly when they are flying domestically.

Their move to INTL was also stupid.

They also used to have a cool schtick and advertisements and now are just boring.

(http://www.autoadmit.com/thread.php?thread_id=5639525&forum_id=2:#48381957)