Monday Market Rundown: Fight for the Skies - July 28th to August 2nd, 2024

Earnings Reports:

Mon: McDonald’s (MCD), Sumitomo Mitsui Financial Group (SMFG), Welltower (WELL), ON Semiconductor (ON), CNA Financial (CNA).?

Tues: Microsoft (MSFT), Proctor and Gamble Company (PG), Merck & Company (MRK), Advanced Micro Devices (AMD), Pfizer (PFE), S&P Global (SPGI), American Tower Corporation REIT (AMT), Starbucks (SBUX), Canadian Pacific Kansas City (CP), Ecolab (ECL), Paypal Holdings (PYPL), Public Storage (PSA), Electronic Arts (EA).

Wed: Meta Platforms (META), Mastercard (MA), Qualcomm (QCOM), T-Mobile US (TMUS), Boeing Company (BA), Automatic Data Processing (ADP), Mizuho Financial Group (MFG), Alfac (AFL), MetLife (MET), American International Group (AIG), Allstate (ALL), The Kraft Heinz Company (KHC), Verisk Analytics (VRSK).

Thurs: Apple (AAPL), Amazon (AMZN), Toyota Motor (TM), Shell (SHEL), Intel (INTC), Booking Holdings (BKNG), ConocoPhillips (COP), Eaton (ETN), Vertex Pharmaceuticals (VRTX), Regeneron Pharmaceuticals (REGN), Anheuser-Busch Inbe (BUD), Ferrari N.V. (RACE), Airbnb (ABMB), Southern Company (SO), Canadian Natural Resources Limited (CNQ), Apollo Global Management (APO), Motorola Solutions (MSI), Coinbase Global (COIN), Monster Beveral (MNST), Microchip Technology (MCHP), Moderna (MRNA), DoorDash (DASH), TC Energy (TRP), Dominion Energy (D), Block (SQ).

Fri: Berkshire Hathaway (BRK. A/B), Exxon Mobil (XOM), Chevron (CVX), Linde plc (LIN), Enbridge (ENB), Ares Management (ARES), CBOE Global Markets (CBOE).?

Economic Calendar:

Mon: N/A

Tues: S&P/CS HPI Composite, CB Consumer Confidence, JOLTs Job Openings, API Weekly Crude Oil Stock

Wed: ADP Nonfarm Employment Change, Chicago PMI, Crude Oil Inventories, FOMC Statement, Fed Interest Rate Decision, FOMC Press Conference.

Thurs: Initial Jobless Claims, Manufacturing PMI, ISM Manufacturing PMI, ISM Manufacturing Prices.

Fri: Average Hourly Earnings, Nonfarm Payrolls, Unemployment Rate.

Weekly Spotlight - Fight for the Skies

In an absolute bombshell, Southwest Airlines, the fourth largest airline in the United States, has decided to completely upheave its business model. Southwest marketed themselves as a nofrills budget airline with no assigned or premium seating, free checked bags, and offering small connections most airlines wouldn’t cover. This led consumers to label Southwest as the “People’s Airline” since it more or less tried to treat every customer equally and avoid up-charging for certain services. All of that is now coming to an end, presumably because of pressure from company shareholders and executives. Southwest announced on July 25th, 2024 that it will end its opening seating, offer “extra legroom seats”, and begin overnight flights starting next year.?

It's a decision that is hard to swallow for loyal Southwest customers. Many choose Southwest because of its unique business model, which appeals to travelers seeking straightforward, hassle-free flying without the hidden fees and add-ons found at other major airlines. Southwest’s egalitarian approach, where every passenger is treated the same regardless of their seat, has been a significant part of its charm and appeal.

However, in the mindset of trying to earn higher revenues and reinvest in growing the airline, this change is undoubtedly a much-needed decision. Southwest has been losing its foothold in the airline industry to Delta, United, and American Airlines for some time. While the big three enjoy growing share prices and customer retention by charging for premium offerings and thus being able to offer better experiences and rewards, Southwest has been floundering, not making any significant changes. This inattention to changing industry trends is what led to them experiencing a 46% drop in profit when they also reported their Q2 earnings the same day as making the big announcement.

Starting next year, Southwest will introduce assigned seating, a move that many traditional Southwest flyers might find jarring. The freedom of choosing any available seat upon boarding will be replaced with a structured seating arrangement, likely diminishing the unique culture of camaraderie and egalitarianism on board. Additionally, the introduction of “extra legroom seats” indicates a shift towards a tiered service model, which contradicts their long-standing commitment to uniformity in service.

The decision to begin overnight flights represents a strategic pivot to capture more business travelers and long-haul customers, aligning Southwest more closely with its competitors. Overnight flights could enhance operational efficiency and provide more options for travelers, but it also signifies a departure from the airline’s original focus on short, convenient flights.

The backlash from loyal customers has been swift and vocal. Social media platforms are abuzz with longtime Southwest patrons expressing their disappointment and frustration. Many fear that the introduction of premium seating options and assigned seating will erode the egalitarian spirit that set Southwest apart from its competitors.

As Southwest transitions to this new business model, it faces the challenging task of balancing innovation with its core values. The airline must navigate the delicate process of implementing changes that drive revenue growth while retaining the loyalty of its customer base.

Southwest Airlines’ decision to revamp its business model marks a significant turning point in its history. While these changes are aimed at driving growth and improving financial performance, they come with considerable risks and challenges. As the airline industry continues to evolve, Southwest’s ability to adapt while maintaining its foundational values will be critical to its future success. Only time will tell if this bold strategy will pay off, but for now, Southwest stands at a crossroads, navigating uncharted territory in a bid to secure its place in the competitive skies.