Southwest Airlines plans to drop its tradition of more than 50 years and start assigning seats and selling premium seating for customers who want more legroom.
The airline said Thursday that it has been studying seating options and is making the changes because passenger preferences have shifted. The moves could also generate revenue and boost financial performance.
Southwest said research carried out showed that 80% of customers and 86% of potential customers favored an assigned seat system. The number one reason a passenger chooses a competitor is the open seating model, the company added.
The announcement made on Thursday is part of the airline’s mission to improve financial performance, increase shareholder value, and enhance customer experience. It comes as the airline faces a push for change from activist investor Elliott Investment Management.
In June, Elliott revealed a stake worth around $1.9 billion in Southwest and immediately began calling for substantial alterations to the company, including a new CEO and changes in many of its business practices.
Southwest made the announcement on the same day that both it and American Airlines reported a steep drop in second-quarter profit despite higher revenue.
Airlines are struggling with higher costs and reduced pricing power, especially on flights within the United States, as the industry adds flights faster than the growth in travel demand.
Southwest, based in Dallas, said its second-quarter profit fell 46% from a year earlier, to $367 million, as higher costs for labor, fuel and other expenses outstripped an increase in revenue. The results met Wall Street expectations.
American Airlines also reported a 46% drop in profit, to $717 million, and said it would break even in the third quarter — well below Wall Street expectations of 48 cents per share profit in the July-through-September period.