Southwest Airlines has recently embarked on a series of new product, practice, and policy changes in an effort to boost profitability. The reactions were overall mixed, with some new changes being a net positive, while others were more controversial.

As a whole, the changes have mainly been controversial when the carrier began charging for products/services that were previously free, and Southwest Airlines as a whole has become less differentiated from the competition. However, while many passengers have not responded positively to Southwest’s new practices, the changes appear to have worked.

Profits have been up ever since the changes were implemented, and Southwest has been successful in getting customers to purchase add-ons. While it’s charging for items that were previously free, the carrier has only aligned itself with the legacy carriers and is distancing itself from the low-cost carriers that it was historically associated with. In a way, Southwest is more differentiated now compared to before.

How Southwest Airlines Has Changed

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The planes still wear the same livery and the branding hasn’t changed, but flying with Southwest is entirely different today than it was five years ago. Previously, Southwest offered four fare classes, all of which included two complimentary checked bags, and passengers could not select seats online. Instead, passengers were grouped into three different lettered sections and assigned a number, indicating their boarding position.

Once on board the aircraft, passengers could select any available seat. Today, Southwest has updated and rebranded its fare classes, while the old open seating policy is gone. Instead, passengers are either assigned a seat at check-in or can pay extra money to select their own seat. Checked bags now cost money, and passengers are now sorted into one of eight boarding groups rather than being assigned a position.

What’s more, Southwest now sells extra-legroom seats for an upcharge, whereas seats on Southwest flights before were intended to be largely equal. The main issue that customers have with the changes is the added fees. Previously, passengers could select any seat at no charge, so long as they arrived at the airport early enough, but Southwest now charges more for extra-legroom seats as well.

While there were no dedicated extra-legroom seats in the past, exit and front-row seats were available at no charge, unlike today. In addition, the carrier’s decision to begin charging for checked luggage was met with heavy backlash.

Southwest Customers Are Upgrading

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Southwest has reportedly seen roughly 60% of its passengers pay for seat add-ons, compared to about 20% before the changes. Given that the airline now offers significantly more, higher-priced options (such as seat selection and extra-legroom seats) to customers, this reflects a major leap in revenue for the carrier.

Curiously, Southwest was originally founded with an intent to offer every passenger an equal onboard experience, but the company’s customers today are overwhelmingly paying to upgrade their experience. Ultimately, the airline industry in the United States has moved towards segmentation, with airlines offering increasingly tailored experiences with varying levels of flexibility and onboard comfort.

For Southwest, the changes are simply moving with the times. However, this was riskier for Southwest because the carrier had historically earned strong loyalty due to its brand positioning, which was in part due to the unique attributes and benefits of flying with Southwest. This included features like open seating and free checked bags. Without these, what separates Southwest from the rest?

However, the significant increase in passengers buying seating add-ons indicates that customers have largely remained loyal to the carrier. If anything, Southwest’s customers are responding positively to the increased optionality on seating. For the most part, the seats themselves are the same as before, but customers have additional choices if they want more legroom and can securely select their desired seat if they’re willing to pay for it. As such, the changes appear to have been a success.

Loyalty, Positioning, And Identity

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Southwest’s recent financial growth and the success of initiatives like extra legroom seating show that passengers weren’t loyal to the ‘equal experience for all onboard’ concept. It was a unique philosophy in Southwest’s early days, but all-economy seating is more closely associated with true budget airlines today, whereas full-service carriers almost universally offer multiple seating and cabin options.

In the US, even low-cost and ultra-low-cost airlines are now offering premium seating options. Southwest was originally run as a low-cost carrier, but as the airline grew and grew, it began to straddle the line. It charges prices close to those of full-service airlines, while offering standard economy seats (now with an extra legroom option).

Today, Southwest can best be described as a hybrid carrier, blending elements of budget airlines and full-service carriers. The term is also commonly applied to Alaska Airlines and JetBlue in the US, although Alaska Airlines in particular has been aligning itself closer to the legacy full-service carriers in recent years.

With recent changes to its practices and products, Southwest has aligned itself almost completely with the legacy carriers, apart from its lack of a true premium product and long-haul network. Otherwise, Southwest differentiates itself through its extremely competitive schedules, robust domestic network, and friendly service from crew members. Based on its current financial performance, this seems to be what drives loyalty towards Southwest rather than open seating, free checked bags, or all seats being identical.

Southwest’s Position With Customers Today

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Southwest was profitable for nearly 50 years until the COVID-19 pandemic, but its comparatively weak recovery made it a target for activist investment firm Elliott Investment Management. Elliott argued that company leadership has failed to evolve to changing market conditions, and many of the changes made to Southwest’s business model were made under the influence of Elliott.

The primary purpose of these initiatives was to increase profits and to further align Southwest with the US legacy carriers. While some passengers mourned the end of open seating, Elliott’s own research showed that the policy turned away many customers. Although passengers now pay for seat selections, this is the case with essentially every airline today.

Similarly, losing the complimentary checked bags was detrimental to consumers, but Southwest merely followed the industry trend. Throughout all of its recent revisions to its policies and practices, Southwest only aimed to become more orthodox rather than move downmarket. It’s now clear more than ever that, apart from small niche groups, people were historically loyal to Southwest because of the network, schedule, and service rather than these quirks.

Unlike features like open seating or free checked bags, the carrier’s network and schedule are material advantages, and the airline has been optimizing its routes, focusing on operating bases where it holds a dominant market position. Meanwhile, the carrier’s customer-facing employees are known for being friendly and attentive, a result of the company’s relatively good labor relations.

Southwest’s Future Trajectory

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Southwest Airlines now offers extra legroom seats across its entire Boeing 737 fleet, but it does not offer domestic first class. The US legacy carriers have long offered this cabin, while Frontier and JetBlue are working on their own first class cabins. Southwest, meanwhile, has not officially announced its own first class, but it’s believed that the carrier is seriously considering it.

Given the high margins associated with premium cabins and how they drive loyalty program engagement, a Southwest first class is almost certainly a matter of when, not if. Loyalty programs have become the biggest factor behind airline profitability in the US, with carriers now focusing on driving engagement via initiatives such as route expansions and premium capacity growth.

Southwest’s possible first class would help, and the airline is also reportedly planning two additional major initiatives to boost Rapid Rewards engagement. Specifically, it’s planning a new premium credit card with Chase to slot above its current portfolio, while also working on a new lounge network that will likely be for Rapid Rewards members who will hold this credit card. Southwest has signed partnerships with multiple foreign carriers and is reported to be exploring long-haul routes.

For instance, Iceland can be served using its existing 737 MAX 8 fleet, and Southwest partners with Icelandair. However, while CEO Bob Jordan has suggested that widebodies could be looked at in the future, this would introduce a new world of cost and complexity. As such, expect that Southwest will stick with the 737, and any potential expansion will be to destinations that can be served by the 737 MAX 8 for the near future.