In recent times, we’ve seen Southwest massively evolve its business models, in ways that would’ve seemed unthinkable several years ago. The airline has started charging for checked bags, has introduced basic economy, and is introducing assigned and extra legroom seating.
What’s next for the airline? Well, it sounds like what we’ve seen so far might only be the beginning.
Southwest “will continue to pursue the consumer”
Sean Cudahy reports on a talk that Southwest CEO Bob Jordan gave at the Bernstein Strategic Decisions Conference on Thursday, May 29, 2025. Jordan said that “we aren’t stopping here,” and stated that by 2026, the airline will unveil its next round of long term plans, to continue evolving the business model.
Jordan gave some “hypothetical” examples of what the airline might consider:
“For many of our folks that love Southwest, we can’t do things, we can’t provide products, that you want. Like a first class. We can’t get you to long haul international destinations. If a lounge is important to you, we don’t have a lounge. I’m not predicting any of those things, but we will continue to pursue the consumer.”
Jordan also reportedly noted that consumer interest in lounges is “super high,” and that the evolution in passenger demand “could require that you think about a different aircraft.”
As you can see, Jordan isn’t actually promising anything specific here. However, if the claim is that they’re going to “continue to pursue the consumer,” then there’s no denying that consumers want first class, lounges, and long haul flying. That of course assumes that you don’t think that current consumer trends are some fad that will be changing soon.
The more Southwest evolves, the less differentiated it is
Watching Southwest’s evolution is absolutely fascinating. I’d argue that for all too long, Southwest didn’t evolve at all, when it probably should have. The airline just continued doing exactly the same thing for so long, without keeping an eye on the competition.
But now Southwest is going to the opposite extreme. The airline is eliminating virtually everything that makes it unique, and is just following the competition. It’s anyone’s guess how this all plays out. To Southwest’s credit, the airline has a massive route network, and scale is more important in the airline industry than ever before.
At the same time, as the airline increasingly simply follows the competition, it loses all competitive advantages it had. Let’s be clear, Southwest doesn’t exactly have a low cost structure, as its employees are paid really well. If you start to eliminate the concept of customers choosing Southwest over competitors due to the differentiated experience, what does that really leave Southwest with?
Like, if the airline starts to build a lounge network, it’ll still only be a fraction of the size of what competitors offer. If the airline starts to offer first class, it’s certainly way behind the competition. If the airline starts to operate long haul flights, it’ll be way behind in getting slots and establishing partnerships, given the lucrative joint ventures that the “big three” US carriers have. Never mind that Southwest’s biggest hubs aren’t necessarily great for these purposes, like Chicago Midway (MDW), Houston (HOU), etc.
So I’m not saying that any of these individual changes are bad, though I do think that when you add it all up and change everything, that combination is bad. After all, it leaves Southwest in a position where it essentially operates at a disadvantage compared to the legacy airlines, and I just don’t see that as a winning strategy. Why would someone fly Southwest over Delta or United?
It sure feels to me like Jordan is just a “yes man” for Elliott Investment Management. He’s not leading the airline with any sort of a vision, other than agreeing to whatever changes need to be made for him to keep his job. At this point, I’d say Southwest has about as much of a strategy as American…
Bottom line
Southwest’s CEO has suggested that the airline “will continue to pursue the consumer,” and “hypothetically,” that could include things like first class, lounges, and long haul flying. Southwest has already changed everything that made it unique, and it sounds like the airline isn’t stopping there. The goal seems to be to basically do everything the “big three” are doing, but with significant disadvantages.
What do you make of the way Southwest is evolving?
