Southwest to introduce seat assignments, extra legroom, and overnight flights

Southwest Airlines is venturing into new territory: flying at night and assigning seats.

The airline announced on Thursday that it will start assigning seats and will introduce premium extra-legroom options in its cabins.

Additionally, Southwest revealed plans to operate overnight flights for the first time in its history, aligning with other major U.S. airlines that provide red-eye services on longer eastbound routes.

It remains unclear when the new seating and cabin features will be implemented, but Southwest indicated it would provide further details during its investor day in September, with expectations for bookings to open in 2025.

These changes come as Southwest contends with activist investor group Elliott Management, which has recently revealed it owns an 11% stake in the airline through publicly traded shares. The group has advocated for the removal of top executives and significant changes to the airline's business and operational model. In response, the airline's board reaffirmed its commitment to the current strategy and implemented a "poison pill" plan — a strategy typically employed to fend off hostile takeovers.

Among the changes generating the most speculation is the potential end to Southwest's open-seating policy — a decision the airline confirmed on Thursday.

In addition to pressure from Elliott, airfare pricing has been softening globally, especially in the short-haul sector where Southwest operates. Some airlines have discovered that revenue from premium offerings—such as first-class cabins, extra-legroom seats, and premium economy—has significantly bolstered their finances. By maintaining a single class of service without additional products, Southwest has missed out on this essential ancillary revenue that other airlines have capitalized on.

Now, with an impending change on the horizon, Southwest points to customer surveys indicating that about 80% of passengers prefer an assigned seating system over the open seating model that has defined the airline since it began operations more than 50 years ago. The airline stated it would provide further information regarding "product designs, cabin layouts, timing, and incremental financial benefits" at the investor day in September.

Quick overview: Southwest Airlines will transition away from open seating: Key details you should know

The red-eye service is set to commence with five daily flights starting February 13, 2025, according to the airline. Plans are in place to expand throughout the year, with additional routes launching in March and June. The initial routes include:

• Harry Reid International Airport (LAS) in Las Vegas to Baltimore/Washington International Thurgood Marshall Airport (BWI)
• LAS to Orlando International Airport (MCO)
• Los Angeles International Airport (LAX) to BWI
• LAX to Nashville International Airport (BNA)
• Phoenix Sky Harbor International Airport (PHX) to BWI

In a conversation with TPG prior to Thursday's announcement, Southwest's Chief Operating Officer, Andrew Watterson, emphasized that the introduction of overnight flights goes beyond just the Elliott situation. It is also aimed at enhancing the airline's overall operational efficiency while awaiting the fulfillment of significantly delayed aircraft orders from Boeing.

"The aviation industry is facing a shortage of aircraft, and we need to maximize the potential of our existing fleet," Watterson stated. "By implementing this, we can increase our flight capacity."

Red-eye flights generally provide passengers with slightly lower fares and greater flexibility; for example, you can enjoy your last day in Las Vegas, fly home overnight, and still make it to work the next day (perhaps after a quick shower). These flights also enable airlines to utilize their costly aircraft more efficiently, enhancing overall cost-effectiveness.

"[Revenue averages] in the industry tend to fall slightly below expectations for overnight flights," Watterson remarked. "However, the aircraft is already a sunk cost, so to speak."

"If you're somewhat constrained on aircraft, maximizing the flying hours from your current fleet brings financial advantages," he noted.

Southwest hinted last fall that overnight flights were on the horizon, and it officially confirmed in March that this service would be introduced soon. Previously, the airline faced technological challenges, especially with its reservations system — it only began offering overnight connecting itineraries last year.

Watterson mentioned that provisions for overnight flights were already part of labor contracts with various unions and had been included in earlier collective bargaining agreements. This spring, the airline finalized a new contract with flight attendants.

In a sense, the introduction of overnight flights signifies a pivotal shift for Southwest at a time when such a change may be necessary — even if it's not to the extent that Elliott demands.

Since early 2021, Southwest's stock prices have consistently declined, and its financial performance has faced challenges due to weakened pricing power and a slowdown in demand growth this year. The airline relies solely on Boeing for new aircraft, operating exclusively with the 737 family. While issues exist throughout the aerospace supply chain impacting all manufacturers and suppliers, Boeing's delivery rate has significantly decreased following a production slowdown linked to new safety processes.

This situation has considerably limited Southwest's growth, pushing its stock price even lower. At the beginning of 2024, the airline anticipated receiving 88 new aircraft throughout the year, but Watterson now states that the expectation has dropped to just 20.

The airline's board and leadership endorse its low-cost, quick-turn business model and distinct onboard experience — which features open seating and boarding groups to determine early boarders. However, they recognize the necessity for change, especially if Southwest aims to succeed in the current market conditions.

This also encompasses the introduction of overnight flights.

"It's definitely a new approach, and quite different," Watterson admitted. "You can see the airline implementing numerous initiatives that were previously uncharacteristic of us."

The airline is currently equipping all its seats with power ports for device charging — a feature it previously resisted — enhancing its Wi-Fi, and redesigning seats for new aircraft models.

"These may not be groundbreaking advancements, but they represent a shift to a different positioning compared to where Southwest was five years ago," Watterson remarked.

Southwest has also adjusted its operational strategies, handling issues like storms and other disruptions in a new way. It aims to reduce delays and cancellations, preventing them from escalating as they did during the holiday chaos in 2022. TPG has previously reported on the positive changes Southwest is implementing to manage operational disruptions.

"We're maintaining a high-quality operation, and I couldn't be more satisfied or proud of our team," Watterson stated.

To date, the airline's performance seems to be improving compared to pre-crisis levels in 2022. Delays and cancellations have generally decreased, especially following severe weather events. While the airline largely avoided the recent CrowdStrike and Microsoft Windows outage, the ongoing challenges at Delta Air Lines, once seen as highly reliable, highlight the improvements Southwest has made over the past 18 months.

"It was intense and chaotic, requiring a lot of effort," Watterson stated. "However, it's beginning to yield results. The crucial point is that we will never reach a point of completion. If you stop improving, you start to decline."

Watterson explained that this is the mindset Southwest's leadership has adopted regarding its product. While the airline aims to preserve its distinctive culture and brand image, the management recognizes the risks of falling behind. Thus, they view these modifications as small yet significant enhancements rather than a complete overhaul.

Watterson described the approach as "incremental progress, always building on what we have." He added, "Eventually, the cumulative effect makes it apparent that things have changed."

Regarding the delays in aircraft deliveries, one might think it could be a silver lining, as adding more capacity could exacerbate the current oversupply in the U.S. market. However, Watterson pointed out that this perspective is misleading.

"We've essentially prepared the company for growth into a larger airline," he remarked. "You don't want to be caught off guard by a sudden shortage of capacity."

With proper notice and managed expectations, "we can adjust the company accordingly," he remarked. However, if a shortage arises after certain expectations have been integrated into the airline's annual plans, "that creates disruption."

In the end, changes are on the horizon for Southwest, regardless of whether Elliott manages to gain a controlling interest or persuades other shareholders to embrace its vision.

For now, while the broader transformation may unfold gradually, change is happening overnight — along with the introduction of seat assignments.