Latest news with #HerbKelleher
New York Times
06-07-2025
- Business
- New York Times
Southwest's C.E.O. on Why Now Is the Time for Bag Fees and Assigned Seats
At the headquarters of Southwest Airlines near the Dallas Love Field Airport, a large green sign with a big yellow arrow points to Bob Jordan's office. It says 'Bob's Meet and Greet,' a folksy way to invite visitors to chat with the company's chief executive. Behind his desk are carefully ordered books, family photos and memorabilia, like model planes acquired over his 37 years at the airline. Southwest, which first took flight in 1971, embraces its heritage. The headquarters are named after the airline's iconoclastic co-founder, Herb Kelleher. There is a preserved replica of his office in the building. His quotes are painted on the wall. So are some of Mr. Jordan's. He is leaving his mark on the company in other ways, too, overseeing major changes to the way Southwest operates. The moves come after a battle with Elliott Investment Management, a hedge fund that called last year for Mr. Jordan's ouster and criticized the airline for adhering to 'antiquated business practices from decades ago.' The changes include getting rid of Southwest's quirky free-for-all boarding process, introducing premium-priced seats and, most controversially, ending its generous free bag policy for all fliers. When pressed on the timing and thinking behind the changes, Mr. Jordan described them as offering customers more choices. Southwest expects to make roughly $4 billion in additional profit as a result. Its shares are up since it unveiled the new strategy, which settled the fight with Elliott. Want all of The Times? Subscribe.
The Independent
06-07-2025
- Business
- The Independent
If Ryanair didn't exist, would you have to invent it?
Things can only get worse: that was the outlook from the boardroom of a small Irish airline called Ryanair. Forty years ago this week, it launched flights between Waterford in southeast Ireland and London Gatwick. The plane making the maiden journey on 8 July 1985 was a 15-seat Brazilian-made Bandeirante aircraft. Over the next few years, as the airline expanded its operations over the Irish Sea, the losses mounted. By 1989, investors were down £20m. A young accountant named Michael O'Leary had just joined Ryanair. 'We had a business class and a frequent flyer club and all the rest of it,' he later told me. 'But the fares were about 20 per cent cheaper [than BA and Aer Lingus], which meant we just lost more money than they did.' In a last-ditch effort to stave off closure, Mr O'Leary travelled to Love Field in Dallas, Texas: the home of Southwest, a young and thriving low-cost airline. The visionary in charge, Herb Kelleher, was happy to share in the secret of his success: not chasing after more established rivals, but cutting costs and fares to entice an entirely new market to take to the skies. 'What took real brains and real balls was to say, 'We can charge $10 a seat and still make money'.' The last throw of the dice before closure was to halve fares across the Irish Sea. As you will have noted, Ryanair stayed aloft. Those of us who wearily boarded overnight buses and ferries between the UK and Ireland were the first in line. The airline carried 5,000 people in its first year. Today, many passengers step aboard Europe's biggest budget airline every 13 minutes. In the 1990s, the conditions for a low-cost revolution were created by the expansion of the UK's free aviation market to pan-European open skies. Initially, though, it was a different start-up that made the running: easyJet. Stelios Haji-Ioannou had also made the journey to Southwest in Texas. Yet the founder of what is now Britain's biggest budget airline took the template further. Sir Stelios, as he has become, built a carrier that bypassed travel agents, shunned the traditional paper ticket, and turned inflight catering from a cost to a revenue stream. So, if Ryanair didn't exist, would we have to invent it? Not strictly, because easyJet and others would have been happy to roll out the low-cost, low-fare model across Europe without an Irish competitor. However, Michael O'Leary made key decisions that have transformed the aviation landscape and made Ryanair dominant: Using small regional airports instead of major hubs, such as Beauvais, Charleroi and Hahn rather than Paris CDG, Brussels and Frankfurt, respectively. These airports came with minimal or even zero charges, allowing simpler, swifter operations. Ordering new Boeing 737s by the hundred shortly after the tragedy of 9/11, when no one else was buying. The price was so low that it secured Ryanair's cost advantage during the first two decades of the 21st century. Making online check-in mandatory, saving a fortune on airport costs while opening up a new opportunity for ancillary revenue. In terms of durability, Michael O'Leary is the Queen Elizabeth II of the airline world. He became the sixth chief executive of Ryanair in 1991. While easyJet and British Airways have been changing leaders roughly twice a decade, the Irish CEO has been in charge for 34 years. During that time, Mr O'Leary has cheesed off countless people – from ministers and aviation leaders to passengers whose customer-service expectations are out of alignment with cost-obsessed Ryanair. Yet he has also empowered more than two billion people to pursue their travel dreams, indulge in long-distance romances or two-home lifestyles, or simply get to work. And all of them without a single fatal accident, making Ryanair the safest airline in the business. Happy birthday. Simon Calder, also known as The Man Who Pays His Way, has been flying on Ryanair and writing about travel for The Independent since 1994. In his weekly opinion column, he explores a key travel issue – and what it means for you.
Washington Post
17-03-2025
- Business
- Washington Post
Read this before you shed a tear for Southwest
Bill Saporito is editor at large at Inc. Magazine. It's easy to think of Southwest Airlines late co-founder Herb Kelleher lighting a cigarette and ordering a Wild Turkey — maybe a double — at the notion that his airline is diverting from the culture that made it so successful. The frequent flier blogs and travel journos are bemoaning what's happening to the beloved carrier because the company is doing away with free checked bags and adding premium seating to fights. All at the behest of some Wall Street parasites — sorry, activist investors — who won't be happy until Southwest sells its soul and sucks as much value as possible out of passengers and employees.
Yahoo
12-03-2025
- Business
- Yahoo
Southwest's new checked bag fee is the predictable result of Wall Street greed
In 2007, Spirit Airlines became the first U.S. airline to start charging for the first two checked bags, an idea imported from Ireland's low-cost carrier Ryanair. At the time, I was working for Consumer Reports, and I called every passenger airline in the country to ask if they would match Spirit's move. Every company's communications staff laughed: Charge for bags? Ridiculous! It took 18 years, but this week the final 'ridiculous' domino fell. For more than 50 years, Southwest Airlines never charged for first two checked bags. The carrier even trademarked the phrase 'two bags fly free.' But on Tuesday, it became the final domestic carrier to begin charging for all checked bags, effective May 28. The airline also announced other service changes, including reduced Rapid Rewards loyalty points on the lowest fares and new expirations on flight credits. Worse, Southwest is also introducing its own version of Basic Economy class, the draconian effort by larger airlines to emulate low-fare competitors. Think tighter seats, no snacks, more restrictions, less overhead bin space, no mileage credit. The frills are so few that that online reservation sites even warn customers what they're getting into. It's a seemingly odd choice by Southwest, until recently known for serving only peanuts, to further strip its service. And it follows another downgrade, the elimination of Southwest's historic 'open seating' policy last year. Why is this happening? The answer is both disturbing and predictable: Wall Street greed. Last year, activist hedge fund Elliott Investment Management purchased a $1.9 billion stake in Southwest and effectively took over the company's board room. Since then, the fund has displayed all the subtlety of Elon Musk wielding a chainsaw because Wall Street is convinced the airline 'leaves money on the table' by not imposing junk fees for bags and ticket changes. But Southwest's unique qualities — including, in recent years, free bags — made it beloved to many of its customers. Under legendary CEO and co-founder Herb Kelleher, Southwest became far and away the darling of the aviation industry, capturing the elusive triumvirate of happy customers, happy employees and happy shareholders. During the 1980s and 1990s, Southwest expanded significantly nationwide. When it entered new markets, average fares went down and traffic went up. A 1993 U.S. Department of Transportation study even gave this phenomenon a name: 'The Southwest Effect.' In those years, Southwest routinely led all domestic carriers in on-time performance and consumer satisfaction, primarily by adhering to a rigid 'quick-turn' philosophy of maximum use of aircraft and crews and an avoidance of many congested airports. All this success made Southwest — with its stock ticker LUV — the most profitable airline in the country over the last half century. Until Covid hit in 2020, it posted a record 47 years of black ink. The company managed to avoid bankruptcy filings in recent decades even as dozens of U.S. airlines reorganized or even shut down, including Allegiant, Aloha, America West, American, Continental, Delta, Eastern, Frontier, Hawaiian, Northwest, Pan Am, TWA, US Airways and United. But analysts warned Southwest's growth bubble would burst, and it certainly did. Prices went up and profits went down. The fabled customer service declined, especially as Southwest launched in crowded airports Kelleher once swore he would never enter, like New York's LaGuardia. Dissatisfaction culminated during the historic holiday meltdown of December 2022, when Southwest stranded more than 2 million passengers, something it initially blamed on bad weather but was, in fact, largely due to outdated IT. Still, while Southwest is not as flush it was in the past, it remains a profitable company. Yet that's no longer good enough for Wall Street. The unthinkable occurred last month when Southwest cut 15% of its workforce, the first layoffs since its 1971 launch. But it's not a lock that Wall Street's preferred plan to increase revenues with new fees will work for Southwest. Yes, revenue from formerly free services is surging at the legacy air carriers; in 2023, bag fees totaled $33.3 billion worldwide. At the same time, the domestic industry has concentrated to levels we haven't seen since the 1910s, via dozens of mergers. And as the American Economic Liberties Project documented in a recent paper, Southwest has contributed to that consolidation by allegedly engaging in predatory pricing against Hawaiian Airlines on inter-island flights within Hawaii, contributing to the smaller airline being forced to choose between bankruptcy or merging with Alaska Airlines. But while American, Delta and United offer basic economy as a means to compete alongside lower fares online, like car salespeople they upsell customers on higher classes of service. Unfortunately, Southwest's Extra Legroom seats and Business Select product can't compete with the Big Three's premium cabins, meals, inflight entertainment, sleeper seats, airport lounges and ubiquitous domestic and international route maps. Southwest built its brand by offering customers reliable service, guaranteed low fares, and no nickel-and-diming. One by one, these qualities have eroded. Perhaps a better strategy for its investors would be rebuilding the product itself rather than squeezing the last dollars from an already angry customer base. For now though, it seems that once again greed has been rewarded. Within hours of the bag fee announcement, LUV's stock went up 8%. Isn't that what flying is all about these days? This article was originally published on
Axios
11-03-2025
- Business
- Axios
How Dallas-based Southwest's business model has changed
Southwest Airlines will start charging for checked bags, upending a long-standing policy and putting the carrier more in line with other major domestic airlines that prioritize business class customers. Why it matters: Southwest has long marketed itself by promising "no change fees," "bags fly free" and "flight credits don't expire." But the Dallas-based company has been steadily changing its business model since an activist hedge fund invested nearly $2 billion in the airline's stock last year. The latest: The airline announced Tuesday that bags will no longer fly free and flight credits will expire after a year. The changes take effect May 28. The carrier has also restructured its loyalty points program, increasing points earned from business class fares and reducing points earned from "wanna get away" fares. How it works: Business select fares and A-list preferred frequent flyers will still get two free checked bags. Southwest credit card holders will get one free checked bag. Baggage fees will be added to first and second checked bags for all other customers. The airline hasn't said what the fees will be. Flashback: Southwest was founded as the "airline with heart," committed to an employee-first culture and offering one class of service to all customers. Following that model, Southwest was profitable for 47 consecutive years until COVID sidelined air travel. Catch up quick: Investor Elliott Management started calling for an overhaul of Southwest's board in July. The airline has since announced several major changes to how it does business. Last July, Southwest announced it would end open seating, instead adopting assigned seating and premium seating with extra legroom. It remains unclear when the new policy will be implemented. Last month, the airline started offering red-eye flights. Customers can now book Southwest flights on Expedia and its other booking sites. Between the lines: The seating changes may end up costing Southwest. Its open boarding process is meant to quickly load and unload passengers, allowing the carrier to run more flights. Seating with extra legroom may actually cut into the space between rows in the rest of the plane, which could upset longtime customers. Threat level: Southwest also appears to be moving away from its employee-first model. The company cut 15% of its corporate workforce in February, laying off more than 1,700 people from its Dallas headquarters. It was the first mass reduction in company history. The bottom line: Longtime CEO Herb Kelleher likely wouldn't recognize the airline he co-founded. He once said Southwest's success had everything to do with its culture. "My competitors can copy everything … but they can't copy our culture, and they know it," Kelleher once said at a Fortune conference.
