Southwest Airlines put on show its recovery plan at its investor day on September 26, 2024. The plan “reimagines core product” to supply the evolving customer demand.
The airline highlighted its new premium seating offerings, which will boost its revenue per passenger, as well as introducing assigned seating – moving away from its staple open seating plan. It found that during market research, customers had overwhelmingly preferred assigned seating.
In addition, it highlighted its red-eye flights and operating around the clock beginning in February next year, as well as its new two free checked bags policy.
“We’ve spent the past few years laying a foundation that serves as the base of our transformation,” said Southwest Airlines executive vice president commercial transformation Ryan Green. “We’ve already started rolling out modernised cabins with improved WiFi, in-seat power, larger overhead bins, enhanced operational efficiencies, and optimised flight schedules.
The company said it is in the process of formalising partnerships with international carriers to expand its network and add more global destinations. It also intends to launch Getaways – its new holiday packages product – next year. The company said it will be updating and enhancing its Rapid Rewards programme.
Green added: “We will continue to build upon our unique competitive advantages, while adapting to consumer priorities in today’s dynamic environment.”
Through its multi-year plan, it estimates to deliver $500 million run rate of cost savings in 2027 by minimising hiring, optimising scheduling efficiency, capitalising on supply chain opportunities, and improve its corporate efficiency. In addition, Southwest said it was “pursuing opportunities to monetise the value of its fleet orderbook” and drive the modernisation of its fleet.
The company aims to have an average fleet age of five years by 2031. Its fleet strategy is expected to reduce average aircraft capital expenditures to around $500 million through 2027.
JP Morgan analysts said: “It turns out the $500 million is a net figure, significantly offset by planned sale and leaseback proceeds and sales of used aircraft.”
The all 737 MAX operating airline has nearly 700 of the aircraft on order. The airline said it is “selectively considering sale-leasebacks while maintaining leverage targets”.
“We were unprepared for the magnitude of Southwest’s planned embrace of sale-leaseback proceeds, which disappointingly figure significantly into its margin and [return on investment capital] ROIC targets,” said JP Morgan analysts.
The company is targeting an ROIC of 15% or greater in 2027 – “well above” its weighted average cost of capital (WACC).
During its investor day presentation, CEO and president of Southwest Bob Jordan said: “It's no secret that Boeing's delivery delays have created significant issues for us… Boeing has delivered very few MAX aircraft on time and we are still waiting on the MAX 7 certification. As those issues continue, we've taken dramatic steps to mitigate the operational risk from future Boeing delays by significantly curbing our growth and arresting our hiring.”
The company’s three year financial plan is expected to create approximately $4bn in cumulative incremental run rate EBIT contribution in 2027.
Southwest’s board approved a $2.5bn share repurchase programme in conjunction with its investor day.