Profit falls despite higher revenue at Southwest and American airlines
DALLAS - Southwest Airlines plans to drop its tradition of more than 50 years and start assigning seats and selling premium seating for customers who want more legroom.
The airline said Thursday that it has been studying seating options and is making the changes because passenger preferences have shifted. The moves could also generate revenue and boost financial performance.
Southwest made the announcement on the same day that both it and American Airlines reported a steep drop in second-quarter profit despite higher revenue.
Airlines are struggling with higher costs and reduced pricing power, especially on flights within the United States, as the industry adds flights faster than the growth in travel demand.
Southwest Airlines switches to assigned seating
Dallas-based Southwest Airlines announced a huge change for passengers. It will shift to assigned seats starting sometime next year.
Southwest, based in Dallas, said its second-quarter profit fell 46% from a year earlier, to $367 million, as higher costs for labor, fuel and other expenses outstripped an increase in revenue. The results met Wall Street expectations.
American Airlines also reported a 46% drop in profit, to $717 million, and said it would break even in the third quarter — well below Wall Street expectations of 48 cents per share profit in the July-through-September period.
American "did not perform to our initial expectations" because of a since-abandoned sales strategy and an oversupply of domestic flights, CEO Robert Isom said. He said the airline was responding with a strategy that boosts profits and "makes it easy for customers to do business with American."
Southwest's unusual boarding process started decades ago as a way for the airline to save money by reducing the amount of time it took for a plane to land, load new passengers, and take off again — turn time, as it is called in the business.
Photo by Nicolas Economou/NurPhoto via Getty Images)
Most airlines assign each passenger to a seat when they buy a ticket. Southwest requires customers to check in exactly 24 hours before departure unless they pay extra to guarantee a better place in the boarding line. Those who hate it call it a "cattle call" but many Southwest loyalists love it.
However, as flights have become more full it has gotten harder to score a window or aisle seat without paying extra. Also, some passengers appear to game the system: They use a wheelchair to get to the gate, where they are given priority in boarding, then miraculously walk off the plane without assistance after the flight.
The airline said in surveys 80% of its customers — and 86% of "potential" customers — want an assigned seat. It said open seating is the top reason that travelers stop flying Southwest and choose another airline.
Southwest also said it will offer redeye flights for the first time.
Southwest said that its first overnight, redeye flights will land on Feb. 14, 2025, on nonstop routes including Las Vegas to Baltimore and Orlando; Los Angeles to Baltimore and Nashville; and Phoenix to Baltimore. It plans to add more redeyes over time.
The changes in seating policy and redeye flights come as Southwest is under pressure from Elliott Investment Management. The hedge fund argues that the airline lags rivals in financial performance and has failed to change with the times. It wants to replace CEO Robert Jordan and Chairman Gary Kelly.
The airline said it will provide more details about its upcoming changes at an investor day in September.
Shares of all major airlines dipped before the opening bell Thursday. Southwest Airlines Co. fell 6% and American Airlines Group Inc. fell 7%. Delta, JetBlue and United slipped more than 1%.