Southwest Sees Major Dip in Profits as It Vows to Make ‘Urgent’ Changes
Skift Take
Key Points
- Southwest Airlines reported a 46% decrease in Q2 net income to $367 million, despite record revenues of $7.35 billion.
- The airline is introducing premium seating and eliminating its open boarding process to address revenue challenges.
- Activist investor Elliott Investment Management is pressuring for executive changes and business model shifts.
Summary
Southwest Airlines reported a significant decline in profits for the second quarter, with net income dropping by 46% year-over-year to $367 million, despite record revenues of $7.35 billion. In response to changing consumer preferences and investor pressure, Southwest is implementing transformative changes, including the introduction of premium seating and the elimination of its open boarding process. These initiatives come amid activist pressure from Elliott Investment Management, which is pushing for executive resignations and a shift in the business model. Southwest has also taken defensive measures such as appointing a new board member and adopting a 'poison pill' strategy to prevent Elliott from gaining more control.
Southwest reported a major decline in its profits for the second quarter as it announced that it will roll out premium seating in a bid to boost its declining revenues.
The carrier had a net income of $367 million for the quarter, around a 46% decrease compared to the same time last year. Its revenues, however, were a record for the quarter at $7.35 billion.
“We are taking urgent and deliberate steps to mitigate near-term revenue challenges and implement longer-term transformational initiatives that are designed to drive meaningful top and bottom-line growth,” CEO Bob Jordan said in a statement.
Southwest previously lowered its revenue outlook due to difficulties in keeping up changing consumer preferences. Earlier this morning, Southwest announced that it would launch premium seating, and as a result, do away with its open boarding process.
The change is one of the most significant in Southwest’s history as it’s always been known for its all-economy cabins and open seating.
These changes and decline in profits come as Southwest is facing immense activist pressure from Elliott Investment Management, which wants Jordan and Chairman Gary Kelly to resign. The hedge fund has also said that Southwest should consider making major changes to its business model, such as adding premium seating.
Southwest appointed a longtime airline executive to its board of directors and adopted a “poison pill” in the hopes of fending off Elliott from acquiring a bigger stake in the company. Elliott said it was willing to start a proxy fight to gain more voting power.
Southwest executives will discuss the carrier’s second-quarter earnings in a call with analysts at 12:30 p.m. ET.
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Photo Credit: A Southwest 737 Max 8. Tomás Del Coro/Wikimedia Commons Wikimedia Commons / Tomás Del Coro
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