Turbulent Times At Southwest

On August 15th, 2023 we published an article in our Aviation Monthly entitled “Will Southwest Airlines Survive?”

At the time, I had just done a bit of research on the airline industry including the major airlines, the regional airlines, the ultra low cost carriers, and the Part 135 Charter operators.? I had expected to review and then be presented with a picture of the major airlines showing Delta Airlines flying high and Southwest Airlines as a picture of corporate well-being and quality.? I expected that United Airlines would present a corporate picture of size mixed with mediocre quality of service while American Airlines would just look weak.

Everything initially looked as I expected and then I noticed something interesting.? I realized that Southwest Airlines…while apparently flush with cash…looked very vulnerable from a market standpoint.?

I am not an analyst but it seemed obvious to me that Southwest no longer fits into any of the normal airline industry niches.? You can consider Southwest to be a major airline but it doesn’t have the international route structure or the domestic hub structure to compete (from those aspects) with Delta, United or American.? It is not a ULCC carrier such as Allegiant, Frontier, and Spirit and it no longer can compete from a fare standpoint with those carriers.? It is not a mid-sized carrier such as Alaska Airlines and JetBlue and has a much larger operation and route structure than those carriers.? It is not a regional airline flying regional aircraft such as Mesa Airlines, Horizon Airlines, SkyWest, etc. and it certainly is not a Part 135 Charter Operator.

Market Segment

So, what is it?? In what segment of the market does it fit?

I quickly determined that it doesn’t fit…that it no longer has a market niche.? Its fares are too high for the low-priced end of the industry and it does not have the international route and domestic hub structure (among other things) to compete with American, United and Delta.

The next question I had was “what will it do?”? Here you have a carrier with a great reputation, plenty of cash on hand RIGHT NOW…but a future that surely can become bleak if something doesn’t change.

Apparently, I wasn’t the only one to recognize this situation because on Monday, June 10th, 2024 Elliott Investment Management announced that it had purchased a $1.9 billion stake in Southwest Airlines and was immediately calling for removal of the Chief Executive Officer Robert Jordan and the Executive Chairman of the Board Gary Kelly.? Elliott stated in numerous articles thereafter that Southwest is “the most compelling airline turnaround opportunity in the last two decades.”

Next Step

It remains to be seen how Southwest will deal with Elliott’s requests.? But now, reality has come to the fore for Southwest and they must acknowledge their circumstances and determine how to deal with them.? That is much, much better for such an outstanding airline than a slow slide into oblivion a la Pan American Airlines, Braniff Airlines, Eastern Airlines, etc.

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