(Bloomberg) — Southwest Airlines Co. has warned employees that it will announce some tough decisions in the coming days under a plan to restore profits and fend off changes demanded by activist investor Elliott Investment Management.
Measures the airline has already announced, including abandoning its 50-year history of unassigned seats, offering a premium product and starting red-eye cross-country flights, are not enough to improve its financial situation. Chief Operating Officer Andrew Watson told employees in a video that it is pushing forward plans to increase revenue by changing routes and the flight network.
“There are some tough decisions coming up,” Watson said in the video, a transcript of which was obtained by Bloomberg News on Saturday. “It’s not a lockdown. But you know, there are going to be bigger changes for some cities,” he said in the Sept. 19 video.
“If you are personally impacted by this, I apologize in advance,” Watson told employees. He did not provide any details about the upcoming actions. Southwest will release a new flight schedule on Sept. 25, which should include the network changes.
Southwest Airlines said Saturday that the video was part of a series of explanatory presentations that Watson regularly sends to employees.
The airline will detail measures it has already disclosed, such as assigned seating, and will unveil new ones at an investor day in Dallas on Sept. 26. There’s a lot at stake as Elliott ousts CEO Bob Jordan and reshuffles Southwest’s board with its own candidates.
“We are trying to get more out of what we have, but controlling costs is not enough because we don’t rely on our employees or our customers to do that,” Watson said. “So we have to make progress on the revenue side to get to profitability and balance.”
Elliott said Jordan and Chairman Gary Kelly refused to adjust the airline’s business model to meet consumer demand for more premium products. Southwest announced on Sept. 10 that Kelly had agreed to resign after the airline’s annual shareholder meeting next spring, and six directors will resign after the board’s meeting in November. At that time, the company will appoint four new independent directors.
The airline has changed its advertising to appeal to younger consumers and added new channels to distribute fares, such as Google Flights and Kayak, as it tries to fill some of the seats left vacant by business people who aren’t traveling as much as they did before the pandemic, Watson said.
Travel blog View From the Wing reported the video early Saturday.
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