Southwest COO’s Leaked Opinion Reveals Internet’s Strong Shift as Business Travel Disrupts – View from the Wing.

Southwest COO’s Leaked Comments Reveal Internet Turnaround as Business Travel Slumps.

with Gary Leff on September 21, 2024

I wrote on Saturday morning that based on an internal message to employees from Chief Operating Officer Andrew Watterson, Southwest seems to be close to changing the network. They may close one or more staffing centers.

Throughout the entire message to the workers there are many interesting things about Southwest’s situation – and problems. The airline doesn’t see the same type of business travel that they used to, and most of their network is being optimized for non-stop business travel on the West Coast. That needs to change, and they need to look for other connections.

Business Trips Don’t Come Back

Southwest Airlines is looking for new customers, and is targeting their ads to “younger, different” customers because “Road Warriors aren’t where they were industry-wide.” Watterson has news though,

Even though the industry as a whole has been down in business travel, Southwest Airlines has rebounded in 2019. So we’re taking market share from these high-yielders.

Adam Decaire, Vice President of Network Planning & Network Operations Control, adds that Southwest needs non-stop and connecting travelers “to compensate for the loss of business travelers.”

United and Delta boasted about their business travel, but I was skeptical. If you listen carefully, business travel is not like that indeed back to where it was. Vasu Raja of America was not really wrong that business travel has not recovered from this epidemic, but it is still an important market.

Even where people are back in the office, it is likely that they are not all in the office every day, so the fact that consultants fly in to serve clients in the office from Monday to Thursday every week and the other no longer exists.

• Those who say business travel is ‘80% recovered’ compared to 2019 are missing the point that it is 80% of 2019 levels, not 80% of where business travel was expected to be in 2024. It is on track new low.
• And that’s not inflation-adjusted. When talking about income, remember that there has been 20% inflation. So 80% recovered is actually less than 2/3rds back.

If Southwest were really happy with business travel, and business travel on the rise, they wouldn’t be splitting their network. away from business trips.

Southwest Airlines has a Profit and Loss Problem

Southwest Airlines says it’s doing well on the tax side,

[O]ur load factor decreased by 4% compared to 2019… However, the yield was 10% compared to 2019. And together – ew call RASM – it was up by 7.5%, which is good .

However, it is not good. Inflation rose by 20% while revenue per seat mile rose by 7.5%. They are lagging behind, not moving forward.

Adjusting for inflation is one of the most important things people forget to do when comparing things against 2019. For example, Delta is crying approx $7 billion in revenue from American Express, but that’s where they were expected to be now without 20% inflation. They are behind. And the $10 billion goal for 2029 is what the goal was five years ago. That means they have lowered their expectations forever.

Meanwhile, cost per seat mile rose “over 26%.” Watterson initially blames gasoline but now believes labor costs are a key driver. They have new labor contracts that are expensive.

Southwest Airlines he is not a cheap seller and they no longer have the bright hedge of fuel that supported them. They are expensive airlines with no income and that’s a problem, and to do that they need to chase those first customers at the end of the day that’s what some of the legroom seats and the middle seats are closed.

Southwest Will Make Network Changes to Create a More Connected Business

Southwest is 70% non-stop, 30% connections. They have seen a real reduction in flying in non-stop California. California has done less to return to office than most markets as well. And Southwest was a commercial airline on the West Coast, and a leisure airline to the East (including the Southeast, like Florida).

The airline says “there will definitely be more bank buildings as we begin to try to establish this connection.” They have limited hours on Tuesdays and Wednesdays. (The airline used to alternate daily and weekly schedules.) They also vary seasonally. The airline fills up flights during the day, but not in the morning and evening.

More From View from the Wing