Southwest Airlines has announced significant cuts to its service in Atlanta as part of a broader plan to reduce costs and restore profitability. The airline will slash over 200 flights per week to and from Hartsfield-Jackson Atlanta International Airport, cutting its weekly schedule from 567 flights to 361, and reducing the number of cities it serves from Atlanta from 37 to 21. This move is part of a strategic shift by the airline to address mounting financial pressure, particularly from Elliott Investment Management, a hedge fund that has acquired a 10% stake in the company and is pushing for cost-cutting measures.
The airline informed employees that the decision will impact staffing levels in Atlanta but will not result in layoffs. Instead, around 200 flight attendants and 140 pilots based in the city will be required to relocate to other hubs. Southwest emphasized that the cuts are a necessary step to improve profitability and sustain the business. "Although we try everything we can before making difficult decisions like this one, we simply cannot afford continued losses and must make this change to help restore our profitability," the airline said in an internal memo.
The reduction in service in Atlanta, the world's busiest airport and a key hub for Delta Air Lines, is the latest development as Southwest grapples with financial challenges. The airline, which once boasted 47 consecutive years of profitability before the COVID-19 pandemic, has struggled to maintain that record in recent years. The pandemic significantly impacted the airline's operations, and analysts point to long-standing internal issues as contributing to its current difficulties.
Southwest is set to hold an investor day in Dallas, where CEO Bob Jordan is expected to outline a detailed plan for the airline's future, including new initiatives aimed at boosting profitability. These initiatives include a departure from the airline's iconic open seating policy, which has been in place for over 50 years. The airline plans to introduce assigned seating and extra-legroom options, a move that mirrors the premium offerings that competitors like Delta and United Airlines have long adopted.
Elliott Investment Management has been a vocal critic of Southwest's reluctance to change its business model. The hedge fund has pressured the airline to introduce additional revenue-generating measures, including charging for checked baggage. Southwest's "bags fly free" policy has been a key differentiator in the market, but Elliott argues that eliminating it could generate substantial revenue, pointing to the billions of dollars competitors have made from baggage fees. In 2023 alone, airlines like Delta, United, and American collected $33.3 billion in baggage fees, a 15% increase from the previous year.
While some Southwest employees and investors express concern about the changes, the airline maintains that it is making data-driven decisions to ensure long-term viability. A company spokesperson stated, "Throughout its history, Southwest has been very deliberate in decision making when it comes to the markets it serves and its business model."
Elliott's influence on Southwest's strategy became even more evident after Gary Kelly, the airline's former chairman, stepped down in September. The hedge fund has advocated for the removal of CEO Bob Jordan and the installation of a new board more aligned with its vision for the company.
The move to scale back operations in Atlanta comes as Southwest attempts to adapt to shifting consumer demands. The airline's cost-cutting measures follow a pattern seen across the industry, as airlines increasingly focus on premium services to drive revenue. With growing pressure from investors and competition in the market, Southwest faces the challenge of balancing its low-cost heritage with the need to remain profitable in a rapidly evolving industry.
