Dallas — Southwest Airlines The company on Thursday raised its third-quarter earnings outlook, announced that its board had authorized $2.5 billion in share buybacks and detailed a series of changes to its business model to counter activist Elliott Investment Management.
The airline said it now expects third-quarter unit revenue to rise as much as 3% from a year ago, ahead of its previous forecast of a decline of as much as 2%, helped by rebookings by airline passengers affected by the CrowdStrike outage in July.
The company also has a long history of working with respected industry veterans, including Spirit AirlinesFornaro’s association with Southwest dates back more than a decade. He served as CEO of AirTran Airways, the airline Southwest merged with in 2011, and after the merger he served as a consultant to Southwest.
Southwest executives laid out their vision for the airline’s future in a presentation to investors at the airline’s headquarters in Dallas on Thursday. Chief Executive Officer Bob Jordan and other Southwest executives come as they face increasing pressure from Elliott, who is seeking changes at the airline’s management.
Southwest executives will be trying to convince investors that they’re on the right path to boosting profits and revenue after the airline unveiled dramatic changes over the summer to its business model that’s been in place for more than half a century, including reserved seating and extra legroom, that could boost the airline’s revenue.
Like many changes in the airline industry, the changes won’t happen overnight. The extra legroom seats won’t be introduced until 2026 because the planes need approval and time to be retrofitted, according to slides in an investor presentation on Thursday. The company estimates that the new cabin, in which about a third of the seats will have extra legroom, will generate $1.7 billion in earnings before interest and taxes in 2027.
The airline said the new seats will have at least 34 inches of legroom, compared with the standard seat pitch of 31 inches.
Southwest also said Thursday it would stick to its long-standing policy of allowing two free checked bags, saying it “generates market share gains that outweigh the potential revenue loss from baggage fees.”
The airline is facing a shortage of new aircraft due to delays. BoeingThat includes the family’s smallest plane, the yet-to-be-certified 737 Max 7. Without smaller planes, Southwest would have to cut unprofitable routes where planes with fewer seats might be better suited to meet demand.
Southwest Airlines told employees on Wednesday it will significantly cut service in Atlanta next year and may cut more than 300 flight attendants and pilots from the city as part of cost-cutting measures.
Earlier this month, Southwest’s board chairman and former CEO, Gary Kelly, announced his intention to step down by the end of next year. Elliott later told Southwest’s mechanics union he still wanted a change at the airline’s top brass. The company had no immediate comment on Southwest’s strategy presentation, released Thursday.
— CNBC Rohan Goswami contributed to this report.
