After investors were less than impressed with Southwest Airlines’ fourth quarter (Q4) performance, the company has instituted the first round of employee layoffs in its 53-year history.
It is the latest example of Southwest veering from its traditional playbook since the company became entangled in a public battle with activist investor Elliott Management last year. The two sides eventually brokered an agreement in which five of 10 Elliott-proposed director candidates joined Southwest’s board as part of a group of six—replacing existing directors as they stepped down alongside Executive Chairman Gary Kelly.
Southwest also has embarked on a three-year plan to evolve its offerings, including introducing assigned seating—another first for the carrier—and the creation of an extended legroom product, both of which are designed to bolster the carrier’s revenue.
The Dallas-based carrier increased its December quarter net income from $252 million in 2023 to $261 million in 2024, but its full-year net profit remained flat at $465 million.
Kinks are also being worked out in Southwest’s new revenue management system, and the carrier expects unit revenue growth of 5-7% in the first quarter. But its unit costs excluding fuel for that same time period are forecasted to rise 7-9% driven primarily by wage inflation from newly negotiated contracts with various workgroups. The airline’s management said that cost initiatives, including further aircraft sale and leaseback transactions and the lapping of the salary increases, should result in Southwest exiting 2025 with year-over-year unit cost growth in the low single-digits.
“CASM-Ex also gave some investors pause, with skepticism on the ability to achieve a LSD y/y core-rate (on very modest y/y capacity) exiting 2025. Southwest is clearly a show-me-story, but we see sufficient green shoots to remain cautiously optimistic against a backdrop of considerably negative investor sentiment,” Raymond James analyst Savanthi Syth said in a report issued Jan. 30.
TD Cowen on Feb. 6 rated Southwest’s shares as a hold, citing higher labor, fuel and maintenance costs “mean margin pressure ahead,” analyst Thomas Fitzgerald said.
Now, Southwest plans to lay off roughly 1,750 employees, focused almost entirely on corporate and leadership positions, said CEO Robert Jordan, with separations beginning in late April.
In a Feb. 17 regulatory filing, Southwest said the reductions in headcount would result in partial savings of $210 million this year and roughly $300 million in 2026. Those savings exclude a one-time pretax charge in the first quarter of $60-$80 million, “substantially all of which is related to severance payments and post-employment benefits,” which the company will treat as a special item.
During a recent earnings call, Jordan reiterated Southwest’s multiyear plan to reduce costs by $500 million. “While we haven’t yet shared the cadence of how the $500 million comes online, the focus will be on achieving that rate as quickly as possible,” he said.
“Changing how we work is an essential part of becoming a more agile company, and it will be a journey,” Jordan said in the announcement outlining the layoffs. “We are building a leaner organization with increased clarity regarding what is most important, quicker decision-making, and a focus on getting the right things done with urgency.”