Southwest Airlines announced earlier on Thursday (July 25th) its plan to cancel the open seating model and provide seats with extra legroom on its Boeing planes, as well as introduce overnight flights, marking the biggest change to its business model in over fifty years in an effort to attract more passengers and increase revenue.
For more than half a century, open seating has been a hallmark of Southwest Airlines flights. This business model has generated uninterrupted profits for the company for decades, realizing a form of “democratization” of air travel – allowing passengers to choose their own seats. However, executives at Southwest Airlines expressed the need to adapt to the demands of today’s customers, making it potentially the biggest transformation the American company has ever seen.
According to The Wall Street Journal, Southwest Airlines CEO Bob Jordan stated in an interview that “This is the right change made at the right time.”
It is not yet clear when designated seating and premium class flights will commence, but Southwest Airlines anticipates they will be available for booking starting next year.
Jordan declined to provide an exact estimate of how much additional revenue the airline’s new initiatives will bring, but he anticipates the revenue to be “significantly higher” than the nearly $1 billion generated from selling extra services (such as allowing early boarding) at present.
The airline noted that they surveyed thousands of passengers to understand their needs and the fees they are willing to pay. The survey revealed that 80% of passengers prefer designated seating, a staggering percentage that surprised Jordan.
“We really, really, really hear our customers wanting this,” said Jordan.
Meanwhile, many employees have grown weary of resolving seating disputes on planes before takeoff and are also eager for a change.
Ryan Green, the Southwest Airlines executive leading this business transformation, stated that since Southwest Airlines’ seats are already some of the most spacious in economy class, even without payment, passengers giving up some space would not affect their comfort. The pricing for this service is still unclear.
The company plans to share more details at the investor briefing scheduled for the end of September. Southwest Airlines also plans to operate red-eye flights starting next year.
At the time of the major announcement by Southwest Airlines, the company predicted that due to an oversupply in the American market, unit revenue for this quarter may decrease by up to 2% compared to last year. Meanwhile, non-fuel costs could rise by as much as 13%, putting pressure on the airline by the end of 2024.
Southwest Airlines reported a 4.5% year-on-year increase in revenue in the second quarter, reaching a record high of $7.35 billion. However, profits significantly decreased by over 46% to $367 million.
The company noted that selling a large number of summer tickets early led to missing out on lucrative last-minute booking opportunities. Nonetheless, profits still exceeded analysts’ expectations.
CEO Bob Jordan stated at the performance announcement, “We are taking urgent and prudent measures to address recent revenue challenges and implementing long-term transformation initiatives to drive meaningful revenue and profit growth.”
Executives from Delta Air Lines and United Airlines earlier this month shared that they expect a slowdown in capacity in the US starting next month, which could result in higher ticket prices.
Southwest Airlines will also offer seats with increased legroom on its Boeing planes, comprising approximately one-third of the entire fleet, but executives clarified that they do not intend to introduce a true first-class cabin.