How much will Southwest Airlines change to boost profits? Some details are emerging

Southwest Airlines said Thursday that it plans to end the open-boarding system it has used for more than 50 years and start flights with passengers sitting in assigned seats during the first half of 2026 as the company tries to remodel the airline to change with consumer tastes and improve profits.

CEO Robert Jordan and other Southwest executives gave details about the airline's future transformation at an investor meeting in Dallas. The airline plans to reserve a third of seats on its flights for passengers who would pay a premium to get up to five extra inches of legroom - and provide a source of more revenue.

The changes to some of Southwest’s quirky habits are designed to reverse its slumping stock price and to fend off a possible proxy fight with hedge fund Elliott Investment Management that could cost Southwest leaders their jobs.

It’s unclear whether the changes will work, but they could leave an airline that bears little resemblance to the Southwest customers know — a carrier that still has a core of rabid fans.

Ahead of the meeting, the airline announced that it expects to begin selling assigned seats just like all other airlines in the second half of 2025 and launch flights under the new model in the first half of 2026. The open-boarding system it has used will disappear, and passengers will be assigned seats, just like on all the other big airlines.

Southwest says its surveys show that 80% of its customers now want to know their seat before they get to the airport instead of picking among the open seats when they board the plane.

The introduction of assigned and premium seating also will require some changes to how passengers board planes before takeoff. The airline said its “most loyal customers and those who purchase premium seating” will be put in the first boarding group. In the past, Southwest customers were assigned their spots in boarding lines based on when they checked in and then left to scramble for their preferred places on planes.

However, the airline said it would continue to allow passengers to check two bags for free, describing the policy as “the most important feature by far in setting Southwest apart from other airlines.”

U.S. airlines brought in more than $7 billion in revenue from bag fees last year, with American and United reaping more than $1 billion apiece. Wall Street has long argued that Southwest is leaving money behind.

But Southwest has built years of advertising campaigns around bags-fly-free. Taking away that perk could change the airline's DNA as much as — or maybe more — than dumping open seating. The airline said doing away with its policy “would drive down demand and far outweigh any revenue gains created by imposing and collecting bag fees.”

Southwest has been contemplating an overhaul for months, but the push for radical change became even more important to management this summer when Elliott Investment Management targeted the company for its dismal stock performance since early 2021.

Tom Fitzgerald, an airline analyst with TD Cowen, said investors will be interested in seeing if Southwest introduces a cut-rate “basic economy” fare or offers changes to its Rapid Rewards frequent-flyer program.

The analyst said another major topic of interest would be whether Southwest plans to reduce its flying next year instead of growing and whether it plans to keep shrinking the workforce. Southwest expects to cut about 2,000 jobs this year through attrition.

Company management heads into the investor day having angered an important interest group: its own workforce. The airline told employees Wednesday that it will make sharp cuts to service in Atlanta next year, resulting in the loss of 340 pilot and flight attendant positions.

Employee unions are watching the fight between Elliott Investment Management and airline management, but they are not taking sides. “That’s between Southwest and Elliott, and we’ll see how it plays out,” Alison Head, a flight attendant and union official in Atlanta, said.

However, the unions are concerned that more of their members could be forced to relocate or commute long distances to keep their jobs. Southwest’s chief operating officer told employees last week that the airline will have to make “difficult decisions” about its network to improve its financial performance.

Elliott seized on that comment, saying that Southwest leaders are now “taking any action – no matter how short-sighted – that they believe will preserve their own jobs.”

The hedge fund controlled by billionaire financier Paul Singer now owns more than 10% of Southwest shares and is the airline’s second-biggest shareholder. It wants to fire CEO Jordan and Chairman Gary Kelly and replace two-thirds of Southwest’s board.

Southwest gave ground this month, when it announced that six directors will leave in November and Kelly will step down next year. The airline is digging in to protect Jordan, however.

Elliott increased its pressure on Southwest this week by saying that it intends to call a special shareholder meeting as soon as next week to make the case for a board overhaul. Elliott has a slate of 10 potential nominees, including former airline CEOs.

“We do not support the company’s current course, which is being charted in a haphazard manner by a group of executives in full self-preservation mode,” Elliott said this week in a letter to other shareholders.

Jordan fired back on Wednesday, saying it is Elliott that wants to fly solo by lobbing “another negative press public ambush” instead of contributing to Southwest’s “transformational plan.”

“We’re willing to compromise, but acquiescing to a single shareholder’s demand for control of the company is not a compromise,” Jordan said. “There’s a lot to be excited about in Southwest, and we will not allow Elliott’s public attacks to distract us.”

Before Thursday’s event started, Southwest announced a $2.5 billion share-buyback program designed to make existing shares more valuable.

The airline also said that a third-quarter revenue ratio will rise by up to 3% instead of being between flat and down 2%, partly because Southwest gained passengers from other airlines during the CrowdStrike computer outage in July, which hit Delta Air Lines particularly hard. And it named a former AirTran and Spirit Airlines CEO to its board.

Shares of Southwest rose 6% in trading before the opening bell.

Shawn Cole, a founding partner of executive search firm Cowen Partners, whose firm has worked for other airlines but not Southwest, believes Southwest is too insular and should follow the recent examples of Starbucks and Boeing and hire an outsider as CEO. He thinks many qualified executives would be interested in the job.

“It would be a challenge, no doubt, but Southwest is a storied airline that a lot of people think fondly of,” Cole said. “If Boeing can do it, Southwest can do it.”