Southwest Airlines (LUV) has had a rough few years. In 2022, the airline’s reputation took a major hit when it canceled over 16,900 flights during a bustling Christmas holiday, leaving over 2 million travelers stranded.
In late 2023, Southwest Airlines was penalized for the incident by the U.S. Department of Transportation, which ordered the airline to pay a $140 million civil penalty after it had already refunded $600 million to passengers.
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To add to the financial strain, last year, Boeing suffered quality and safety issues with its 737 Max aircraft and had to pause production of the jets, which caused significant delivery delays.
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As a result, Southwest Airlines, which only flies Boeing 737 aircraft, had to reduce its delivery expectations from Boeing dramatically.
Southwest Airlines' third-quarter earnings report for 2024 revealed that its operating income, which is a company's profit after paying operating expenses, declined by roughly 67% year over year during the quarter.
Southwest doubles down on cutting costs
In the midst of the airline’s financial woes, the company just revealed that it will be making some major changes in an effort to cut costs. According to a new report from CNBC, Southwest Airlines is putting a freeze on corporate hiring and promotions.
The airline is also pausing many of its internships for summer 2025 and will skip a few employee team-building events that have existed since 1985.
Southwest Airlines CEO Bob Jordan said that “every single dollar matters” in a new memo sent to employees announcing the changes.
“We made a lot of progress in 2024, and we have a lot of tangible momentum ... but we’re still far from our goal of returning to industry-leading profit margins,” wrote Jordan in the memo. “A key risk in 2025 is acting as if the urgency has passed and therefore not sustaining the focus and energy from 2024.”
Southwest Airlines did not immediately respond to TheStreet's request for comment.
The airline's stock price has decreased by about 40% in the past five years. Its stock is currently selling for almost $33 per share.
Southwest ushers in 'a new era' to win back customers
The move from Southwest Airlines comes after a memo in September revealed that the airline was planning to reduce its service in Atlanta, cutting 300 pilot and flight attendant positions by April 2025.
That same month, Southwest Airlines announced that it would be "transforming" the company in order to “meet evolving customer preferences and increase revenue opportunities” in its new three-year plan.
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Some of the changes it announced are directly aimed at attracting customers. This includes adding assigned and premium seating, with the latter having extra legroom. The airline also updated its boarding process to make it more efficient and committed to maintaining its bag policy, which allows customers to check in two bags for free.
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"We're now ushering in a new era at Southwest, moving swiftly and deliberately to transform the company by elevating the customer experience, improving financial performance, and driving sustainable shareholder value," said Jordan in a Sept. 26, 2024, press release.
Southwest Airlines expects the multi-year plan to yield a roughly $500 million run rate of cost savings in 2027 “by minimizing hiring, optimizing scheduling efficiency, capitalizing on supply chain opportunities, and improving corporate efficiency,” according to the press release.
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