Change is constant and inevitable. This is a guiding principle that Southwest Airlines has embraced over the years, making it possible for the airline to evolve from a small regional carrier into a national leader. With the aviation industry currently in a state of flux, Southwest needs to maintain its adaptability to navigate through these challenging times and remain on course.
Bob Jordan, CEO of Southwest Airlines, recently made a crucial decision to transition from Southwest’s traditional open-seating system to a format that includes assigned and premium seating. This is a significant change, considering that the open-seating system is a trademark that has been synonymous with Southwest’s brand. Nonetheless, this is a move that aligns with Southwest’s long-standing agility, a trait that was deeply ingrained in the company’s culture by its founder, Herb Kelleher. Kelleher famously stated, “If you don’t change, you die.”
The aviation industry is currently faced with unique challenges that require an innovative approach. Issues such as evolving customer demands, supply chain disruptions, and various market pressures call for strategic decisions to ensure sustainability.
This necessity for transformation is not unique to Southwest. At United Airlines, as early as 2017, the management team observed that customers had a strong preference for segmented products and services. As a response, United Airlines introduced different tiers, including Basic Economy, which allowed them to cater to a wider range of customer preferences.
Other low-cost airlines, including Spirit and JetBlue, have also started to incline towards premium seating offerings to meet market demands and increase their revenue. Southwest is also taking similar steps to meet its customers’ needs. However, they are committed to making this transition in their signature style.
Shareholders’ Perspective
The recent changes at Southwest have been met with mixed reactions from shareholders, particularly from activist investor Elliott Investment Management. Elliott, which has an 8.2% stake in Southwest, described the seating changes as “more than a decade late”. Despite this criticism, Elliott has yet to propose alternative solutions that could help Southwest achieve a $49 per share price target within 12 months.
While changes in leadership can sometimes be beneficial, such a move could potentially be detrimental for Southwest in the long run. A sudden leadership change could disrupt the company’s momentum, which is crucial for implementing the new changes successfully.
Southwest’s recent investments and changes extend beyond seating. The airline has been investing roughly $1 billion every year in modernization efforts, including a massive cloud migration operation to enhance system reliability and resilience.
Despite the challenges that come with such large-scale changes, I remain optimistic about Southwest’s future under the leadership of Bob Jordan. His understanding of the company’s place in the market and his strategic approach will be crucial in delivering value for both customers and employees.
Running an airline involves more than just financial acumen; it requires a deep understanding of the industry, operational expertise, and a commitment to the company’s core values. Replacing executives in the midst of critical changes could disrupt the stability that Southwest needs to implement these changes successfully.
Moving Forward
In moving forward, Southwest needs a balanced approach. This involves maintaining the leadership of Jordan, who has a deep understanding of the company, and providing him with the time and opportunity to make and realize the benefits of necessary changes.
As someone who has weathered similar storms, my advice to Southwest and its shareholders is to stay the new course, listening to customers and embracing smart transformation. Replacing experienced leaders right now guarantees a hard landing—the last thing airlines need in turbulent times.
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The opinions expressed in this commentary are solely the views of Jane Sheppard and do not necessarily reflect the opinions and beliefs of Fortune.
