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Southwest Airlines undergoes major policy shifts after activist investor involvement

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Southwest Airlines undergoes major policy shifts after activist investor involvement
Policy
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Bob Jordan, President, Chief Executive Officer, & Vice Chairman of the Board of Directors Connect with Bob Jordan on LinkedIn (Opens in a new browser tab) | Southwest Airlines

Southwest Airlines has played a significant role in shaping the North American air travel market through its distinct operational model. Known for its point-to-point network and low-cost approach, the airline has historically set itself apart from legacy carriers by focusing on affordability and convenience, especially for city pairs lacking nonstop service.

Founded in 1967 as Air Southwest, the company began operating exclusively within Texas before expanding across the United States following airline deregulation in 1979. Its early strategy involved high-frequency, short-haul flights using a single aircraft type—the Boeing 737—which simplified operations and reduced costs. This approach allowed Southwest to become one of the largest and most influential low-cost airlines globally.

Southwest's growth included expanding to over 100 destinations across 42 states, Washington, D.C., Puerto Rico, and international markets in the Caribbean, Mexico, and Central America. The carrier’s network operates with rolling hubs rather than traditional hub-and-spoke systems, keeping aircraft moving throughout the day without relying on a central megahub.

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The airline experienced 47 consecutive years of profitability between 1973 and 2019. However, challenges such as the pandemic-related downturn and operational disruptions in late 2022 led to significant losses exceeding $1.1 billion. In response to these difficulties, activist hedge fund Elliott Investment Management acquired more than a 10% stake in Southwest Airlines and influenced changes at both board and management levels.

A settlement reached in October 2024 resulted in new directors joining Southwest’s board and former CEO Gary Kelly stepping down as executive chairman. Under this new leadership structure, several longstanding policies were changed: layoffs were introduced; free checked bags ended on May 28, 2025; assigned seating was adopted; premium seating options were added; basic fares increased; red-eye flights were introduced; flight-credit validity was limited to one year; fares began appearing on third-party websites; and a codeshare agreement was established with Icelandair.

These changes mark a departure from some of Southwest’s traditional customer-friendly practices that contributed to its popularity among travelers. The airline now also has interline agreements with carriers such as China Airlines and EVA Air, extending its virtual reach beyond North America into Europe and Asia.

Despite these shifts, Southwest remains committed to operating an all-Boeing 737 fleet—currently numbering over 800 jets—with more than 500 additional aircraft on order. This single-type fleet continues to underpin efficiencies in pilot training, maintenance, scheduling, and spare parts management.

While investors may view recent strategic moves positively for improving financial performance in the near term, it is uncertain how passengers or employees will respond over time. Changes like ending long-standing employment guarantees have altered perceptions among staff and customers alike.

Southwest Airlines’ business model forced other U.S. carriers to unbundle products and lower fares for broader access to air travel. As it adapts under new governance pressures from major shareholders like Elliott Management https://www.cnbc.com/2024/06/03/southwest-airlines-elliott-management-takes-stake.html, industry observers are watching closely to see if it can maintain its unique position or will continue converging toward legacy carrier practices.

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