By Scott Hamilton
March 19, 2025, © Leeham News: I’ve been reading hand-wringing opinion pieces in recent weeks—especially last week—about the changes at Southwest Airlines.
Beginning with its first layoffs in its 50+ years of 1,700 headquarters staff through last week’s announcement of a series of changes that makes Southwest like just about every other US airline, the woeful crying bemoans the fact that Southwest is, essentially, no longer “Southwest.”
Readers of LNA would have seen nearly a year ago a series of article focusing on the underlying core problems at Southwest. Coincidentally, these appeared before Elliott Management Co. announced it had taken an 11% stake in Southwest, demanding changes in management and its business model to boost profits and stock prices. These and related articles are below.
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LNA’s analysis by Judson Rollins hit on just about everything Elliott and recent writers and observers complained about, including the sacred cow: Bags Fly Free. Rollins eviscerated the business sense of this benefit in this analysis. Rollins analyzed Southwest’s revenue challenges—and, more importantly, it’s out-of-control costs.
After Southwest’s epic operational meltdown over Christmas in December 2022, I wrote a review of the airline’s long march to this disaster that was decades in the making. I gave up flying Southwest 20 years before that mess for reasons outlined in my review. My column is of special relevance.
I have no sympathy for how the airline got into its predicament, nor for those hand-wringers today.
Bloated workforce
Southwest’s policy of no layoffs was great for employee morale. But job security and management benevolence meant little to increasing wages and benefits at contract time. Over the decades, other legacy US airlines reduced labor expenses through bankruptcies and negotiations. Southwest’s labor unions refused to recognize market realities. As a result, Southwest has the highest labor costs of US airlines as a percentage of expenses, by a wide margin.
When Rollins did his first of two part analyses of Southwest in May 2024, the airline had the fourth highest cost per available seat mile of any US carrier. Only the legacy Big Three, American, Delta and United airlines, were higher.
The handwringers bemoaning that Southwest is now “just another airline” should look at Alaska Airlines. Alaska, which is older than Southwest (it was founded in 1932), had lower CASM and it offers everything (and more) that Southwest is now adopting. Alaska is solidly profitable, investors are happy and now with the acquisition of Hawaiian Airlines, it’s becoming a global carrier.
Alaska is my favorite airline.
Southwest’s business model
As a business flyer, I could care less about Bags Fly Free. I never check my bag. I schedule and price are my top “wants.” Southwest for decades had fallen short on both. Southwest long, long ago deemphasized schedule frequency. When I lives in Seattle and flew to Chicago to see family or on business, I much prefer Midway Airport to O’Hare. But Southwest had one non-stop flight at a time that didn’t meet my schedule. This wasn’t the only route.
Furthermore, I could get cheaper fares on American, Delta, United and Alaska than on Southwest. Plus I got an assigned seat, and the seat of my choice—sometimes for a fee, sometimes for free. I remember once paying a fee to Southwest for an “A” boarding preference. However, the flight originated in another city. Despite paying this extra fee and board in the first group, the only seats left were middle seats.
It was the last time I flew Southwest.
Fleet composition
Southwest flies only Boeing 737s. This was fine for decades. But as Southwest upgauged to the 737-800, succeeded by the MAX 8, turn times exploded with the extra seating, driving down utilization and increasing costs. Smaller cities could support larger airplanes, to frequency was reduced and some cities pairs were dropped.
Dogmatic adherence to a single fleet type is further harmful with Southwest sticking with the 737-7 MAX. Setting aside all the delays in the MAX program, Boeing hurt the economics of its smallest 737 when it shifted the 7 MAX from a re-engining of the 737-700 to become a shrink of the 737-8. This helped Boeing’s production efficiency. But analysis using Leeham Consulting’s proprietary Aircraft Performance and Cost Model shows that the Airbus A220-300 and Embraer E-195 E2 have lower cash operating costs—more than 10% lower—than the MAX 7.
Each also has somewhat lower capacity. Right sizing the aircraft to properly serve smaller markets is a common industry practice.
Continuous hubs
Southwest also eschews “hubs,” even though it operates several de facto ones. Officials don’t want to schedule true hub operations because this hurt utilization and on bad days can cause delays. But as the legacy airlines know well, you exponentially increase city-pair and revenue potential.
The answer is to create a continuous hub with some many flights that connections are happening throughout the day, without empty ramp space that is a hallmark of traditional hubs.
Bottom line
Southwest’s recently announced changes are necessary but only the tip of the iceberg. Fundamental changes are still needed. These aren’t something to mourn. These are things to revitalize the airline.
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