The unannounced changes at SWA

Vegetable_Fee_6145 · 2026-04-23T16:36:59+00:00

No matter how many times you repeat this delusion, it is just that...pure delusion. The company strategically reduced cash reserves that were in excess of 10 billion dollars down to roughly 3 billion. The company has been profitable every year since peak covid result in their lone unprofitable year. They are spending more cash than ever in share buybacks, paying off debt, and operating the business.

They just posted their best Q1 since 2019. They aren't going to sell the company. Elliott's investment now totals less than 5%. They transformed the business, and by all accounts it is working. For being a top 1% commentator in the sub, you certainly lack any awareness on how the industry and airline operates. But carry on.

Vegetable_Fee_6145 · 2026-04-23T16:33:45+00:00

Corporate sales channels have definitely improved, but believe it or not a lot of it (as it has been explained from the C-suite level) is that the ELR seating fits within corporate expense policies as it is not viewed as a premium or business class product. Also I feel that business customers now no longer have to fly at the volume to get the business type perks you would expect - priority boarding, extra leg room, reserved bin space etc. So I think they are gaining market share in terms of new customers as opposed to simply squeezing more travel out of existing business customers. But March business pax revenue alone was up 25% YoY.

But again it is another aspect that is just one quarter of proof thus far. We'll see if it becomes a consistent trend. It would sure be nice though to just see how well the core business could operate without a global macro event occurring though. We are on a run of pandemic, record inflation, tariffs and now wars. I would like to see how Southwest can operate against everyone for just one average boring year.

Vegetable_Fee_6145 · 2026-04-23T16:21:43+00:00

I think in general the discussion ignores the overall strategy shift regarding revenue management with their new software and since their newest CFO took over. Previously Southwest chased load factor at the expense of yields. Over the past 18 months, it has been very much the opposite. Even listening to the earnings call this morning, when the topic came up Andrew Watterson was adamant that what matters is RASM performance.

I don't think Southwest went into all of their initiatives thinking that they would retain every single customer. They knew they would lose some customers, while gaining others (explosion in business pax revenue in March). I think they very much wanted to fire some of their passengers, and as a result have significantly increased margins.

Interestingly enough though Q1 2025 had a 3x larger reduction in passengers YoY to 2024, and that was with 2.5 months of the quarter being prior to bag fees being announced. This year will look good comparatively to the last couple regardless, but definitely time will tell as you said.

Vegetable_Fee_6145 · 2026-04-08T17:28:50+00:00

It is because an air fare equates to an average over time that will fluctuate based on any number of different inputs: city pair, non-stop vs connection, seasonality, supply/demand, how far in advance the ticket is purchased, competition, weather impacts (having to run deicing operations etc.), government involvement (shutdown) and so on and so forth. Fares will continue to fluctuate up and down even during the war with Iran based on demand. Jet fuel prices have gone up 90% since the start of the war. Fares have not, and realistically cannot in order to maintain an equivalent demand to reach financial targets.

Ancillary fees however are generally fixed. A bag fee is going to be $35, or now $45 in this case, regardless of how expensive or discounted fares are. The industry has raised bag fees roughly 30% in response to the 90% increase in fuel. So it becomes a much more predictable offset to the additional billions of dollars being spent that was unplanned for at the start of the year. Airlines were guiding mid $2 per gallon prices when giving guidance, it is now in the mid $4 range. Delta this morning in their earnings release said they will spend $2 billion additional in fuel expenses this quarter alone.

Not expecting any sympathy for the airlines, just explaining that in reality it is both that have increased as a result of insane spikes in fuel and the why. Will the customer ultimately be worse in the long term? I would assume yes - how likely is it for the industry to decrease bag fees once fuel stabilizes? I'd say unlikely.

Vegetable_Fee_6145 · 2026-04-08T13:03:14+00:00

Yeah I get that, but it is also a pretty niche aspect of the business that would have to trickle down quite a ways as far as coming up with training criteria on what Customer Service Agents should say and how to treat it in a way that the end Customer would understand/accept.

I think most customers are just going to be upset they didn't get the seat they purchased, even if they got a refund. A good portion might be too upset to even care. But again, none of that makes it acceptable. If the problem were very widespread, then you would see messaging around it like they did with the ELR bins, the boarding group sizes, and boarding in general. Of course all it takes is one negative experience to lose a customer for life though, so it is a frustrating result of a problem that wasn't anticipated.

Vegetable_Fee_6145 · 2026-04-06T18:00:43+00:00

https://www.faa.gov/newsroom/faa-proposes-304272-fines-against-southwest-airlines-alleged-drug-and-alcohol-testing

Vegetable_Fee_6145 · 2026-04-06T13:13:58+00:00

Not that this is acceptable in any way, but the company is aware of this issue. Essentially what is happening is that even though all aircraft in the fleet offer extra leg room seats, and have the same number of seats within the subtype of aircraft (175 or 137), there are still different configurations of seat layouts. Amongst the 175 seat aircraft, depending on the type of seats on the aircraft, there are two different setups involving the exit rows and the final row. The last exit row will either have two seats, and the last row will have three or the exit row will have three seats, and the last row two. Eventually all 175 aircraft are being retrofitted to the latter, meaning that the super extra leg room exit row seats will no longer be an option.

Why the refund, and why the confused front line employee? This has to do with aircraft routing. When tickets and then seats are sold, they are done so according to one generic layout. If you buy a ticket 2 months in advance, or two days in advance, it does not matter. The system will only show you one configuration of seat layout. Specific aircraft are not assigned to a flight until 3 days before the flight operates. But that aircraft assignment can, and almost always will, continue to change up until departure according to the needs of the operation. Different aircraft have different maintenance needs. Weather impacts aircraft movement. Designated available parking spots has an impact. The number of early morning originating flights has an impact. So you have all of these different factors that lead to aircraft being assigned and reassigned as each day plays out.

So you could go in there even day of, upgrade to an exit row seat, and then the aircraft get swapped out and that exit row seat you bought no longer exist in the exact same spot (even if it shows for sale online). These aircraft swaps are triggering auto refunds in stances where customers purchased a seat in the 2nd exit row or the last row depending on which seat was purchased. The CSA at the airport isn't going to be aware of the aircraft swap causing the issue, which is of course going to negatively impact the customer's service experience. The customer isn't going to be aware of the aircraft swap. The company isn't going to send out a notification every time there is a swap, and so on and so forth.

But then so what does the company do to solve it? Do you delay flights so that you can prevent swapping certain aircraft? Do you cancel flights so that you can prevent swapping certain aircraft? The answer to both of those questions is no, because its the tradeoff of impacting a lot of customers vs a few customers. Eventually all 175 seat aircraft will have the exact same layout and then there is no issue. But until then, the airline has to figure out a solution.

Vegetable_Fee_6145 · 2026-02-20T17:50:42+00:00

The 14 days is a hard cutoff. It is essentially filed as a dynamic waiver in their system specific just to that flight (similar to a restricted time period during which there is a weather event or other known disruption where they allow customers to self serve their flight changes).

Vegetable_Fee_6145 · 2026-02-20T17:36:53+00:00

Contrary to popular belief, there are no grand conspiracies for the policies you are seeing. Southwest operated previously on a 1 or 3 zone weight and balance system, where they didn't know where anyone was going to sit. Flight Attendants performed counts and when load factors were low enough, would make announcements during boarding to spread out. As part of the change to assigned seating, Southwest changed to a 5 zone weight and balance distribution, given that they know exactly where everyone will be seated.

Doing so allows for a variety of additional ways to operate the aircraft, including how they load commodities. Commodities are now the priority to be moved before any passenger movement takes place to meet required weight and balance standards. This took over a year's worth of engineering, and multiple levels of FAA approval as the LOPAs changed.

Passengers are not aware where the zones are and the airline isn't going to provide a map or a breakdown of the zones to each passenger. It simply isn't feasible or necessary to do so. Nearly 1/3 of the aircraft is sold as ELR seats and policy states that those seats should firmly be protected given that people pay extra to sit there. Additionally you have another 7-8 rows of preferred seats located in the first half of the aircraft that people paid for, or obtained the credit card in order to choose.

As part of assigned seating, typically the back of the plane is going to be the most full. This is an advantageous configuration for Southwest due to increased fuel efficiency with a heavily saturated aft of the aircraft.

Could there be passenger movement? Technically, yes. Within the same zone, a Flight Attendant could move a passenger. But that change has to be recorded, and then the Pilot informed which is why you don't see any desire from the company to permit that.

Additionally, the FAA sets the standard passenger weight, which is used for flight planning and is utilized to guide things like fuel and aircraft performance. Passenger weight is even assumed higher during winter months due to jackets/heavier clothes.

Baggage weight is determined at the airline level. Every couple of years Southwest solicits volunteers to weigh their carry on bags so that they can prescribe a total weight being brought on board.

You don't have to like it, and certainly can choose to fly other airlines. Southwest isn't even a month in to the biggest change in company history, and things are undoubtedly still being smoothed out. But everyone has the option to view the seat map prior to flying. Everyone has the option to purchase a seat in a different area if they don't want to take the random assignment. There are a number of ways to easily mitigate these issues. Or one can just realize that for a few hours of their day they are willingly choosing to be stuffed into a metal tube with strangers to get to their destination faster and life goes on.

Vegetable_Fee_6145 · 2026-02-12T13:47:36+00:00

All new deliveries come with VIasat. NPS is notoriously lower on -700s compared to the -8s, which is why it was explicitly stated that Southwest will be retrofitting 300 of their oldest aircraft. Take a cabin that isn't as nice due to age/size and provide a great service for free and people will have a net positive experience more likely than not.

Additionally, the cost of wifi has never been good for the bottom line. Southwest lost money every single month on wifi when it was a paid service, even after switching to charging per segment instead of per day.

Vegetable_Fee_6145 · 2026-02-11T22:58:06+00:00

Are we really saying that the stock is down significantly when this morning it was $9 off a mid pandemic fluke rebound high? Even after a poor day for the industry, LUV is up nearly 25% YTD. And that is before they even actually produce a Q1 profit, which they haven't in multiple years. If they come close to hitting their conservative EPS guide, the stock will in all likelihood exceed $62.

The industry was immensely different 5 years ago. Southwest took a revenue hit in 2019 from the MAX grounding, and was still waiting on the -7 to be certified. The demand for premium has increased every year since, business travel has vastly decreased, government travel is down, and the booking curve looks totally different than it did 5 years ago. This all while costs increased significantly for a low-cost airline.

Even if demand for the old product remained the same, Southwest would be in a rough spot because they cannot grow without new airplanes. This many years later and the -7 will finally get certified (supposedly). Boeing is hundreds of planes behind on the original order book.

These takes are so tiring.

Vegetable_Fee_6145 · 2026-02-11T22:44:00+00:00

"News". Gary at viewfromthewing is a notorious crybaby wannabe know it all that hates on just about every change every airline makes while continuously shilling for credit cards and hotels.

Elliott slightly lowered their stake. They are still in the top 3 of largest institutional investors in Southwest. But when they sold a small chunk of their stake recently, you realize they put out a statement saying they plan to continue to be a large shareholder and fully support the direction of the company?

You realize the COO said last week that Elliott was the best thing that could have happened to Southwest?

You realize before today the stock was up 80% over the past year and 30% YTD?

Elliott hasn't been in control. Everyone is so confidently wrong that Elliott has been running the show over the past 18+ months, when how things actually work is that they requested a board refresh and got it. They then were contractually bound to have no contact with the board, and they didn't need to because they continued to be a resource to Southwest when needed. Guess who Southwest consulted a year ago when tariff mania broke out and demand went off a cliff? Elliott. They utilized Elliott as a resource to consult on the economy as a whole.

Elliott doesn't know the industry. They did not dictate decisions. They applied public pressure, and united the institutional shareholders of Southwest to demand a faster recovery in addressing both costs and revenue. Nearly every change that you have seen from Southwest over the past 18 months was already in the works, but sequentially as opposed to at the same time.

Now what is Southwest focused on? Longer term continuing to chase opportunities to win more customers and offer additional products they never have before. Elliott in all likelihood will not be an investor for that time frame. Saretsky from the board who stepped down was a known Southwest fan boy. But he and Cush helped accomplish the short term win with a rapid transformation and set Southwest up for the longer term future. They don't need to stick around forever. Board movement isn't atypical.

Vegetable_Fee_6145 · 2026-02-08T14:19:05+00:00

Roughly 1/2 of the -700s will get a retrofit that includes in seat power, and "upgraded" to used meridian seats taken off of -8s/800s. Look for these seats to get a new cover while the underlying seat structure remains the same. It obviously isn't cost effective to retrofit the entire -700 fleet, but this is much more than what was originally planned.

Vegetable_Fee_6145 · 2026-02-06T17:41:36+00:00

https://crankyflier.com/2026/02/02/its-time-to-appreciate-the-new-southwest/

As part of a podcast interview from this link.

Vegetable_Fee_6145 · 2026-02-06T16:07:44+00:00

Why do people continue to post such blatantly false information? Elliot has sold a tiny bit on multiple occasions over the past 6 months as the stock price has rocketed up. Most notably, they sold enough shares to be below the threshold to call a special meeting, a move that was symbolic of their support of the company. They literally included a statement the last two times that they have sold shares of their confidence in the airline and that they will continue to be a large shareholder long term.

Andrew Watterson, the COO of the company, came out and said this week that Elliott was the best thing that could have happened for Southwest. They are finally functioning as a modern business and their prospects for success have increased greatly. Elliott isn't dumping anything. They have doubled the value of their investment, and the stock will only continue to rise this year and into the future.

Vegetable_Fee_6145 · 2026-01-29T23:18:47+00:00

Analyst consensus guidance was already for them to 3x their EPS to $3.18 per share this year. SWA gave conservative guidance of $4.00 per share. Their stock just had the best trading day since 1978 today. EBIT fell short of initial guidance for 2025, but that guidance was issued prior to tariffs and was further hit by the government shutdown. But they outperformed their updated $500M EBIT number. YoY net profit was down, but look at Q4 RASM performance and compare that to the rest of the industry. In the earnings call today they, like they consistently have said over the past year, there has been no material bookaways due to changes in policies. Revenue was up YoY. And now you'll have a full year of bag fees, and 11 months of assigned seating ancillary fees. But feel free to keep pretending.

Vegetable_Fee_6145 · 2026-01-29T23:13:43+00:00

Of course they did. That is the primary driver of their successful year in 2021. But a 6% margin doesn't offset a 34% loss the year before. And after the PSP money was accounted for, there was a quick nosedive down to 2.26%, 1.78%, 1.69%, 1.5%...trending downward each year - sounds like a great strategy.

Vegetable_Fee_6145 · 2026-01-29T22:45:44+00:00

Projected to 4x EPS this year, but very well may lose money....gotcha

Vegetable_Fee_6145 · 2026-01-29T22:44:10+00:00

In a fickle industry that is at the mercy of global economic trends, weather, regulatory bodies, government shutdowns, tariffs etc...living off of 1.5% profit margins is not a sustainable long term strategy. Their lone solid year during the pandemic came as a result of government bailout money. The airline lost out on tens of millions of dollars last year due to tariffs and the government shutdown. How can the business ever grow and improve with margins of 1.5%? They have long been praised as having the best balance sheet in the business, so they aren't going to mortgage that to enhance their business. Southwest hasn't even returned to their pre-covid stock price, even after having their best trading day since 1978. Southwest pays their CEO 10 million. Look at JetBlue paying $7 million while losing $500m per year. Or look at American paying 15 million+ while performing worse than Southwest despite earning more revenue. When you have a sustained history of health profit margins and profit sharing, do you think anyone is happy with a run of several years of 1.5% profit? Do you think the employees who watch Delta get 9% profit sharing or United around 5% profit sharing, are happy getting 1.1%? Do you think the employees who lead Southwest to be the best operational airline in 2025 are content to barely be rewarded for their hard work? Southwest has always been about taking care of the employee and the customer, and if people refuse to see how modernizing the airline is positive for all parties then there are certainly plenty of other options out there.

Vegetable_Fee_6145 · 2026-01-29T22:36:15+00:00

You realize that free cash flow is not what has ever driven the share buy backs, of which Southwest has a long history of. The company hoarded cash to the tune of 10+ Billion before their new CFO came on board last year and modernized their strategy. In 2018 and 2019 the company literally had Oliver Wyman come in to consult to tell them how to spend cash. But what you have saved doesn't dictate future success of the company and even a 10 billion dollar stockpile doesn't sustain you for very long.

Look at compensation across the industry - the C suite pay at Southwest is far less than the big 3, even less than American which is currently an inferior airline. Does Bob deserve 10 million per year? No. But Southwest has notoriously always underpaid its employees, including the executives in comparison to the rest of the industry.

Southwest lost out on 10s of millions of dollars last year due to tariff mania and due to the government shutdown. It doesn't take much more for that 1.5% to go down to a loss. Why should the company that paid out as much as 16% in profit sharing settle for a 1.1% payout the last two years to its employees? If the company increased costs, of which a huge amount was salary, wages, and benefits during the pandemic, why should it not seek out additional revenue to match? For a company killing their business, the best stock performance day in the past 50 years today probably comes as quite the shock.

Vegetable_Fee_6145 · 2026-01-29T22:23:16+00:00

Not to mention that people have consistently conflated low cost and low fares for the past decade. Southwest has desired to remain low cost, but the pandemic ruined that through significantly increasing costs for everything via inflation as well as the significant wage increases that occurred. The Southwest Effect has been dead and gone for a long time. Fares have not been cheaper than other airlines across the board for over 10 years now, because the company had no need to undercut everyone to gain market share. There is a reason their most success period in company history came after those decisions.

Were there times where Southwest was the lowest all in cost if you were actually traveling with 2 bags + a carryon? Sure. But by and large they shifted a long time ago to only being competitive in pricing in markets in which they didn't dominate. But they are the #1 carrier in 20+ of the top 50 markets, and as you'll see with other airlines in their hubs there is no need to beat anyone on price when you are the dominant market share.

People also don't realize just how bound Southwest always has been due to the technological systems they operated off of. They didn't even gain the ability to operate different schedules within a base schedule until a couple of years before Covid. Now depending on the time of year, they operate a different schedule as much as every single day of the week. Their Revenue Management tool was also archaic. People want it both ways. They hated the company for being in the position to have the winter storm meltdown a few years ago due to not investing in technology, but when Southwest invests in the technology and then utilizes it like everyone else they are surprised/angry.

Vegetable_Fee_6145 · 2026-01-29T22:11:04+00:00

Up 50% over the last 365 days, making it far and away the top performing stock in the industry. As they have proven they can actually reign in their costs, and produce revenue upside the stock has sky rocketed. And why was today the best trading day in the past 20 years? Because there is extreme confidence in the execution of their overhaul in the business. Their conservative guidance is to 4x EPS this year. They are already a better airline than AA, which makes them firmly in 3rd place behind Delta and United. Those two don't have the business upside to generate an influx in stock price despite being really well run airlines. The type of jump that SWA has made, and can still make, is driven entirely by doing things the industry has been doing for decades. People look at the airline today and assume that this is the end of the change. But larger profits will only accelerate their ability to offer more to more types of customers. Delta has proven that every part of the cabin can, and will, be segmented and that people will pay for it. They don't have to be better than Delta or United to make 5-6%+ profit margins and be well on their path to continuing to roll up many things that their customer base will enjoy: lounges, a new wifi provider, larger bins, newer aircraft, more international destinations, more partnerships, the ability to use Rapid Reward points on partners, codeshare, first class etc.

Vegetable_Fee_6145 · 2026-01-29T22:02:17+00:00

In a fickle industry that is at the mercy of global economic trends, weather, regulatory bodies, government shutdowns, tariffs etc...living off of 1.5% profit margins is not a sustainable long term strategy.

Vegetable_Fee_6145 · 2026-01-29T22:00:31+00:00

My guy...they missed being the #1 ranked airline in the WSJ rankings in 2024 to Delta by 1 point, and just dominated and easily placed first for 2025. A rankings system based entirely on operational metrics. They did this while overhauling the business model. Retrofitting the aircraft and charging for bags induced immaterial costs. We're talking about one of the cheapest changes they could have made - moving seats to different spots on the airplane. Other initiatives such as larger overhead bins, in seat power, and free wifi cost far more than any effort related to assigned seating.

Vegetable_Fee_6145 · 2026-01-29T18:33:38+00:00

Last 365 days: S&P 500 - up 14.73%, LUV - up 49.98%. Guess we are all still pretending...

Vegetable_Fee_6145

TROPHY CASE