Southwest Airlines, a longstanding budget airline pioneer, has announced it will no longer practice its famous open seating policy. Coming after five decades of the custom, this move came under intense financial and activist investors’ pressures.
The Dallas based carrier’s record revenue for the second quarter was $7.4 billion but quarterly profit nearly halved to $367 million compared to what it earned during the same period last year. Southwest is at a turning point as investors from Elliott Management have taken up a $1.9 billion stake in its shares amidst a decline in its profitability.
The new seating policy details are expected to be disclosed next month; however, industry experts believe that it will have great economic consequences. Introduction of paid seat assignments and premium seating could give rise to up to three billion dollars in extra income for the company according to one analyst.
All of these are changes that customers demanded, according to Southwest Airlines CEO Bob Jordan. The economic motivation can easily be read between the lines, however, as the carrier struggles to hold competitive gains in the face of skyrocketing labor and fuel costs.
This could be indicative of a wider change in Southwest Airlines’ business model but also, perhaps, in the budget carrier market. Indeed, the criteria of low-cost airlines seem to be increasingly fitted into something more compatible with higher-priced airlines nowadays.
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The result of Southwest’s move extends beyond the company itself. As one of the “Big 4” airlines in the United States—which includes American, United, and Delta—Southwest Airlines’ decisions affect a large proportion of the country’s travel habits. Quite possibly, the elimination of open seating would make passengers pay for seat preference—such as window or aisle seats—on future Southwest flights.
It is the leading edge of a wider development in the airline industry, heralding an emerging intractable problem for budget carriers: reconciling consumer expectations with fiscal sustainability. As Southwest takes steps to roll out all these changes, the travel landscape could be set to change dramatically for thrifty customers.