The low-cost carrier has rolled out the first changes to its long-established model, but its push to return to profit comes as wider US demand falters, writes Graham Dunn
A clear narrative of weakening US demand was evident across the spectrum of carriers during the recent first-quarter earnings season, and it added an extra dimension to Southwest Airlines’ repositioning efforts.
A string of US carriers announced they would pull back planned growth in US domestic capacity over the rest of the year amid the uncertain macroenvironment that has followed US President Donald Trump’s plans to introduce tariffs.
Southwest, which has a large reliance on the US domestic market, was no exception. “Given the current macroeconomic environment, we are being proactive and further reducing capacity in the second half of the year,” said Chief Executive Bob Jordan. It now expects to increase full-year capacity roughly 1% in 2025.
The carrier had already limited capacity expansion this year to 1-2% growth in available seat miles (ASM) as part of a wide-ranging initiative to restore the once-serially profit-making carrier to the black. That in turn followed a tough 2024 for Southwest as losses continued and vocal minority shareholder Elliot Investment Management agitated for a change in leadership and strategy.
Southwest’s plan includes changes to longstanding and ideological policies, such as introducing assigned seating and, from the end of May, baggage fees.
“We just had too many revenue streams… that were just left on the table that other airlines have in place,” said Jordan. “And it was impossible to hit appropriate returns without acknowledging that.”
Southwest remained loss-making in the first quarter, though it pointed to a better-than-guided performance on costs and performance. In that regard, Southwest Chief Operating Officer Andrew Watterson flagged the importance of a turn time reduction initiative, which it has rolled out across 19 airports. “Reducing turn time generates more flying from each aircraft, increasing our capital efficiency,” he said.
Other initiatives include its first overnight ‘redeye’ flights, which launched on five routes from Las Vegas in February and will cover 33 flights by June.
Notably, Southwest reported sharp yield improvements in the first quarter, attributing these to revenue management actions and capacity moderation. Passenger load factor, however, was down more than four percentage points at 73.9%.
“In a world in which demand has grown, yet peaks are higher and valleys are lower, you would expect to see net lower load factor from us and higher yields,” Watterson explained, “[and that] was exactly what you see in our results because we are very strongly pushing the yields.
“Now we’re conscious that we need to fill back up our load factors,” he said. While Southwest will in part stimulate demand through the rollout of its new Basic Economy product, Watterson also pointed to developing better connectivity options within the network.
“So, it’s taking people going from Albany to Tucson, where there’s never going to be a nonstop, but [they] will perhaps connect through our network. If you aggregate those small bits of demand enough you help fill your aircraft,” he said.
