Is Southwest Leaving Money on the Table?
The airline is betting it has the right model for its customers. But after each quarter, when it underperforms more premium airlines, analysts want to know: Is management sure?
We think of Southwest as being ahead of its competitors, as the airline that invented the modern LCC model. But more recently, it has been slow to evolve on product attributes that consumers (and investors) demand. And to make matters worse, somehow CEO Bob Jordan seems to see this as a badge of honor — something to brag about on earnings calls.
"You go back 10 years, we wouldn't have been talking about WiFi," Jordan told analysts. "We would not have been talking about power on the aircraft. And we can go on and on and on.1 There was a time when we didn't even have a loyalty program here at Southwest Airlines."
Is Southwest stubborn? Or perhaps consistently behind the times — by choice?
These aren’t questions I had thought much about until Jordan’s somewhat odd comments last week on the airline's fourth quarter earnings call. Jordan was responding to a question about why Southwest hasn't added more premium products, such as extra-legroom seats or (gasp) first class.
Here’s Southwest’s position: It is betting that the current premium trend someday will fizzle (even though Delta has been riding it for 15+ years) and that its single cabin approach is more sustainable and appropriate for its customers.
It’s a reasonable argument, and I’m not here to say Southwest is getting this wrong. Loyal readers know that I'm enamored of very profitable carriers like Ryanair and Cebu Pacific that fly dense all-economy configurations and don't offer WiFi or power. Maybe premium seating isn't the right move for Southwest's customer base, which has grown accustomed to its consistent, egalitarian product. If this group wanted premium, it might have already moved to Alaska, United, Delta or American, all of which offer extra-legroom seats and first class. Or maybe adding premium or any other trendy premium-adjacent product is not worth the extra cost.
It’s the way Jordan answered the question that irked me. I feel as though Southwest, which once led the industry in innovation, doesn’t seem as sure of its place in the market. It sometimes seems paralyzed by trends outside of its control, and perhaps waits too long to realize what its competitors noticed long before. The CEO shouldn’t be bragging the Southwest eventually figured out that iPhone-mad customers want in-seat power (the airline started adding it last year) and fast, reliable WiFi (that effort began in 2022.)
Instead, I’d expect the CEO’s messaging to be: hey we missed some earlier development in what passengers want. But next time, we’ll move much faster.
The funny thing is that, in his answer, Jordan used the power and WiFi examples to try to show Southwest is willing to change — that it’s not stuck in his ways.
“I'm just trying to make sure that you know that we aren't stubborn in this area," Jordan said. "As you see demands change, we'll understand that and we will react if needed."
I don’t know. I’m starting to think the airline is stubborn. If you don’t want to do premium, fine. But don’t point to other developments you’ve missed as examples of why watch-and-wait is the right approach.
What do you think? Send me an email at email@example.com
Now onto a few other items I found interesting in last week's fourth quarter earnings call.