For decades, Southwest Airlines has been a symbol of consistency in the airline industry, known for its single fleet type of Boeing 737s and its open seating policy. But recent financial pressures, coupled with ongoing production issues at Boeing, have forced the airline to reassess its core strategies. Could this be the end of open seating as we know it?

During Southwest's Q1 2024 earnings call [link to transcript], CEO Bob Jordan acknowledged a 'serious study' underway to examine customer preferences regarding assigned seating and premium cabins. While hesitant to disclose details, he hinted that any changes would be revealed at the Investor Day in September.

This shift in tone is remarkable. Just six months ago, Jordan dismissed any notion of assigned seating, claiming 'there's nothing underway, no story here.' The timing of this comprehensive customer preference study coincides with mounting financial pressures, making a strategic shift more likely.

Southwest's first-quarter results were disappointing, despite solid operational performance and record revenues. The airline is struggling to offset cost inflation driven by new labor contracts and Boeing's delivery delays. These delays, stemming from the MAX 7 certification delays and the ongoing geared turbofan saga, have exposed the vulnerability of relying solely on Boeing 737s.

One intriguing hypothesis is that Southwest may be considering a hybrid model. This could involve retaining open seating for a portion of the cabin while introducing a premium section with assigned seating and enhanced amenities. Such a model could unlock a new revenue stream while catering to evolving passenger preferences, particularly for longer-haul flights.

The financial impact of introducing a premium section could be significant. The following chart illustrates a hypothetical scenario, assuming a premium section is introduced on 25% of seats with a 20% fare premium.

This simplified calculation highlights the potential revenue opportunity. While associated costs would need to be considered, the potential profit contribution could be substantial.

Southwest's upcoming Investor Day promises to be a pivotal event. Will the airline continue to be the champion of no-frills, low-cost travel? Or will it embrace a more segmented product offering, catering to different passenger preferences and aggressively pursuing profitability? The answer, it seems, will come in September.

"Highlights"

Southwest Airlines is considering a significant transformation, potentially abandoning its long-held single fleet type and open seating policy. Financial pressures and Boeing's production issues are key drivers of this potential shift. A hybrid model with both open seating and a premium section is one possibility being considered. Investor Day in September is expected to reveal the airline's strategic direction.

"Fun Fact"

Despite the industry's increasing reliance on baggage fees, Southwest Airlines has remained steadfast in its commitment to two free checked bags. This customer-friendly policy has been a cornerstone of the Southwest brand since its inception.