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Southwest under attack

I’m neither a financial analysis nor an investment expert, but I just thumbed through this fifty-page presentation from Elliot Investment Management that calls for a makeover of Southwest Airlines. Elliott recently took a $1.9 billion stake in the airline, and is looking to use that investment as leverage to oust the current CEO and BOD and install their own.

Essentially, they want to remake Southwest into a clone of their competitors. In this one slide taken from the presentation, they are faulting Southwest for not offering assigned seating, checked bag fees, and a variety of classes.

As a former high-value customer of Southwest Airlines, they do need to make improvements, but instead do the opposite of what Elliott is proposing. They need to return to the basics that made them so successful and not become a clone of American or United.  

Southwest’s model is distinctly different from the other airlines, and that’s what propelled them to become the world’s largest airline, as measured by seats sold. In recent years they’ve faltered, not because of their model, but because of their failure to execute on that model.

Southwest’s approach was simple: lots of flight options with their direct city to city model, low prices, great customer service, no change fees, and free checked bags. They also developed their own simple to use website that was years ahead of their competition. They created a unique boarding system with no assigned seating that allowed them to turn around flights more quickly, improving aircraft usage. Customers appreciated them because they were unlike the other airlines that used deceptive pricing, charged for baggage, seats, and changes, and had a myriad of fares few understood.

But Southwest’s prices are no longer the lowest and often more expensive. They’ve become less dependable with more canceled and delayed flights, and their customer service is often abysmal. In other words they’re becoming like the other airlines. So why would a smart investor think making them more like United or American would be an improvement?

Up until a few years ago, I spent $10-20K each year on weekly Southwest flights cross-country and up and down the coast of CA. I appreciated being able to have many choices of times, being able to change flights with no penalties, and counting on them to get me to my destination on time.

Today you couldn’t pay me enough to fly them when there are other options. So what happened to cause such a change?

An early warning for me was when their CEO said they would continue to fly their 737 Max8 planes right after the first crash. He said he trusted Boeing. That was so unlike their founder, Herb Kelleher, promising to always put their employees first and customers second, ahead of any profits.

But the real change was when Southwest flights simply became unreliable. Many of my flights were delayed or cancelled and I could no longer depend on Southwest to get me where I needed to be on time. That caused me to look to alternative airlines, like Alaska, and discover I was able to find cheaper fares.

For a period of six months, every trip I took suffered from either cancelled flights or long delays. And when one flight to Georgia was canceled the night before, they simply told us fly out a day later, rather than finding a more convenient option. That was when I discovered it was no longer a few minutes to reach CS, but a few hours.

I went from one of their most loyal fans to a hater of the airline in just a few months. Every now and then I give them another chance -usually when I have few other options. But so far, they haven’t delivered. An upcoming flight in late July that we booked on Southwest to avoid a connection, was just canceled, requiring a new booking with a connecting flight.

Besides improving their operational efficiencies, Southwest could find ways to differentiate them even more, such as providing free WiFi, automatic text messaging alerts of their flight status, and a better effort to accommodate passengers on canceled flights.

And those frequent trips up the CA coast? While go less often, but when we do, we drive instead of flying. More reliable and no anxiety.