Inside Southwest’s plan for its future

DALLAS — Southwest Airlines executives on Thursday outlined for Wall Street their vision to boost profits: extra legroom seats starting in 2026, assigned seating, international partnerships and overnight flights. Southwest’s new plan comes as its leaders seeks to fend off activist Elliott Investment Management, which has called for leadership changes.

Southwest said its three-year plan will add $4 billion to earnings before interest and taxes in 2027.

The airline also raised its third-quarter revenue forecast and said its board authorized $2.5 billion in share buybacks.

Southwest said it expects unit revenue to rise as much as 3% in the third quarter over the same period last year, up from a previous forecast of a decline of as much as 2%, helped in part by rebooking passengers who were originally flying on airlines affected by July’s CrowdStrike outage.

Southwest shares rose more than 5% on Thursday, and other airlines also ended sharply higher after oil prices slipped nearly 3%.

Like with many changes in the airline industry, those new initiatives won’t happen overnight. Southwest has to train staff, update technology and inform customers about the changes.

Seats with extra legroom won’t debut until 2026, as the carrier requires Federal Aviation Administration approval and time to retrofit aircraft, according to a slide from Thursday investor’s presentation. It estimated that the new cabins, in which about a third of the seats will have additional legroom, will generate $1.7 billion in earnings before interest and taxes in 2027.

The new seats will have at least 34 inches of legroom, compared with a standard pitch of 31 inches, the airline said.

Southwest was under pressure to ditch its open seating model and often chaotic boarding process. Under the new plan, its cheapest ticket class, Wanna Get Away, will not come with a seat assignment until check-in, similar to the current system. More expensive tickets will offer more access to seats, but Southwest didn’t disclose details about that process on Thursday.

“Looking at lapsed customers, the seating and boarding process is the No. 1 reason they haven’t returned to Southwest,” said Southwest’s chief commercial officer, Ryan Green. “We were struck by how clear the message was. There is an absolute need for us to evolve our model to better meet customer preferences.”

Southwest also announced its first international partnership, with Icelandair.

Southwest on Thursday also said it will stick with its long-standing policy of allowing customers to check two pieces of luggage for free, saying it “generates market share gains in excess of potential lost revenue from bag fees.” Southwest executives have characterized getting rid of free checked bags as a third rail that would hurt bookings.

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