Southwest Airlines is taking flight with a comprehensive three-year plan dubbed ‘Southwest Even Better,’ designed to propel the airline into a new era of enhanced customer experiences, improved financial performance, and a stronger commitment to shareholder value. This transformation marks a significant shift for the carrier, focusing on adapting to evolving traveler preferences while retaining the core values that have defined Southwest for decades.
Transforming the Customer Experience
At the heart of Southwest’s transformation lies a commitment to providing customers with more choice and greater comfort. Driven by data-driven research into evolving travel needs and expectations, Southwest is introducing several key changes:
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Assigned Seating:
Recognizing the growing preference for assigned seating, Southwest will introduce this option in the second half of 2025, with the first flights featuring this model taking off in early 2026. This move is anticipated to increase customer appeal and boost demand, particularly on longer-haul flights.*
Premium Seating:
To cater to the desires of both business and leisure travelers, Southwest will introduce premium seating options with extra legroom. These seats, offering up to five inches of additional pitch, will be available for approximately a third of the fleet while maintaining the airline’s renowned standard economy seat pitch.*
Evolving Boarding Process:
While integrating assigned seating, Southwest will maintain its unique boarding process based on position numbers and signage, ensuring operational efficiency and an improved customer experience. The most loyal customers and those who purchase premium seating will continue to enjoy priority boarding.*
Preserving the Bags Fly Free Policy:
Southwest recognizes the immense importance of its bags fly free policy, which remains a defining characteristic for the airline. Extensive research confirms that any change to this policy would negatively impact demand and outweigh any potential revenue gains from introducing bag fees.Expanding Horizons and Strengthening Revenue
Southwest’s transformation extends beyond its core product, encompassing new initiatives designed to broaden appeal and generate additional revenue:
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Global Airline Partnerships:
To expand its network and connect customers with global destinations, Southwest is forging strategic partnerships with international carriers. Icelandair is the first partner, with flights expected to launch in 2025 through Baltimore-Washington International Airport. Southwest intends to add at least one more international partner in 2025, further enhancing its global reach.*
Getaways by Southwest:
Launching in 2025, Getaways by Southwest will offer unique vacation packages that combine the convenience of Southwest flights with hotels and other travel components, all packaged with the airline’s signature flexible cancellation policy and no change fees.*
Rapid Rewards Enhancements:
The airline will introduce enhancements to its Rapid Rewards program, offering even greater benefits to A-List and A-List Preferred members. Southwest will also update its credit card program to provide cardholders with even more value, particularly with the introduction of assigned seats and premium seating options.Operational Efficiencies and Financial Strength
Southwest is concurrently focusing on operational efficiencies to mitigate cost pressures and streamline processes, ensuring funding for future capacity growth without requiring additional aircraft capital investment:
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24-Hour Operations:
Starting in February 2025, Southwest will introduce redeye flights in key markets, maximizing aircraft utilization and enhancing operational efficiency.*
Turn Times Between Flights:
The airline is actively working to reduce the time it takes to turn an aircraft, further increasing aircraft productivity and streamlining day-to-day operations for employees.A Clear Path to Sustainable Profitability
The financial plan underpinning Southwest’s transformation is designed to drive sustainable profitability and shareholder returns. Key elements include:
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Cost Discipline:
Through measures such as optimized scheduling efficiency, supply chain opportunities, and corporate efficiency improvements, Southwest expects to achieve a cost savings run rate of $500 million by 2027.*
Strategic Fleet Management:
Southwest is pursuing opportunities to monetize its fleet order book, leading to a significant fleet modernization. The airline aims to achieve an average fleet age of just five years by 2031, resulting in reduced average aircraft capital expenditures to approximately $500 million through 2027.*
Prudent Capital Deployment:
Southwest is balancing its capital allocation priorities by minimizing aircraft expenditures, investing in operational infrastructure, managing debt, and returning capital to shareholders through dividends and share repurchases. The board of directors has approved a $2.5 billion share repurchase program, demonstrating its confidence in the transformation plan and its ability to deliver on its financial objectives.Financial Targets
Southwest’s three-year financial plan is expected to support its long-term targets for sustainable profitability:
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$4 billion Cumulative Incremental EBIT Contribution in 2027:
This significant increase in earnings before interest and taxes is expected to be driven by the comprehensive portfolio of initiatives outlined in the transformation plan.*
ROIC of 15% or Greater in 2027:
This target for return on invested capital reflects Southwest’s commitment to achieving a robust financial performance well above its weighted average cost of capital.Southwest’s transformation signals a clear commitment to its customers, employees, and shareholders. By embracing evolving preferences, leveraging new opportunities, and prioritizing operational efficiencies, the airline is positioning itself for sustained success in the dynamic airline industry.
