Southwest’s $1 Billion Pivot: CEO Bob Jordan on Bag Fees And Other Changes

0:03This week on Bold Names, we're talking to Bob Jordan. He's the CEO of Southwest Airlines. The company is going through a lot of changes, and assigned seating is just part of that. We get into that and much more. So fasten your seatbelts, put your tray table up, because we're taking off. From the Wall Street Journal, I'm Tim Higgins. This is Bold Names, where you'll hear from the leaders of the Bold Name companies featured in the Wall Street Journal. Today we ask, how does Southwest Airlines change while keeping what makes it unique?

0:40Bob Jordan, thank you for joining us here on Bold Names today. Really excited to hear about all the changes at Southwest. And when I think of Southwest, I think of a few things. Super friendly people, cheap fares, free check baggage, and open seating. Now, we've seen some changes. Some of those things have gone away. Most notably, in the last month or so, you have gone to a model where you're assigning seats to people. How has that very big change gone for you at this point? I mean, I remember it used to be like church. You could sit anywhere. Well, you know, we're driven by the customer. This is all about pursuing what the customer wants.

1:23Herb, our founder, always said, if you don't change, if you don't follow the customer, you die. and 80 % of our customers wanted assigned seating. We put together the most transformational set of initiatives this company has ever seen. It's really a change to the business model. Again, our product, we added extra leg room, kind of a pseudo premium. We added a different boarding. We added assigned seating. We've added all kinds of partners. We can now connect you to every geography in the world at this point. So a lot of fundamental changes. But at the end of the day, it's all about, number one, what our customers want, and number two, not losing our values.

2:02Our values are not going to change. And this company is, from the very start, based on great people delivering exceptional hospitality, and that is still the very center of the brand promise. And I want to get into some of those changes here, but let's get into the seat issue. because for those people who don't remember, who aren't regulars, it used to be, it was like a process, right? You're like 24 hours beforehand, you wanted to get onto the app to make sure you could get your group to get in line. And there was a whole theory and strategy of, so you maybe could figure out to get an aisle seat or a window seat.

2:37Now that's gone. Now it's just like you get your signed seat when you buy your ticket, right? You do. And, you know, what we heard from folks was they loved the simplicity of open seating, what you just described, but they hated the stress of not knowing where they were going to sit, especially if you're a family and you can't guarantee that you're next to the person you're traveling with. You can't guarantee that as a family you're sitting together. So folks want to know where they are on the aircraft. And today you make a booking and you can know, obviously, at that time. We also gave you a lot of choice.

3:09We have an extra leg room section. It's got an elevated snack service and it's really a great product. The implementation overall was just flawless. So, I mean, if you think about it, overnight we changed two of the most fundamental things about how you operate the airline, how we seat customers, how we board customers. So we went to bed one day using open seating and woke up the next day in assigned seating. So it's a huge change. And by the way, on the day that we implemented assigned seating, we led Delta, American, and United in on-time performance and cancellation rate. So I'm really proud of our company.

3:46But it's never perfect. You know, with a change that large, you're going to have tweaks. What I love is that the system was designed to be able to do those things very quickly. You know, I think the question you've got, you're paying for checked bags now. There are these extra kind of add-ons for whether more legroom or there's basic economy affairs. There's all this kind of tiering, which sounds like what a traditional airline is like. And some of those Southwest fans are saying, hey, what's the difference now between the other guys and Southwest? How does that make you feel? I mean, you've been at the company probably almost 40 years, right?

4:22That sounds like maybe that might sting a little. Change is hard. What we do know, this is what our customers want. They want choice. They want more choice from the very basic fare to a fare that includes basically everything from top to bottom. And on the check bag fee, all you have to do is have the Southwest Airlines credit card. And you're going to accrue more miles. You're going to have a free check bag. You're going to be guaranteed a better boarding group. But it's because that's what our customer wants. It's all about pursuing our customers. But to your what's different now, you're becoming more and more like every airline.

5:04It's funny, over my tenure here, 38 years, we have customers who are incredibly loyal to the brand. It's an emotional connection to the brand. So you change something, and that's going to upset somebody. I remember going through, we used to have plastic boarding cards. You had a plastic boarding card, you got in line, and the gate agent took this piece of plastic from you, and that's how you got on the airplane. And when we changed that, we had folks say, well, there goes the sole of the airline. No more plastic board. We used to serve peanuts. Obviously, some folks have peanut allergies. And we changed that to pretzels.

5:38And, oh, there goes the sole of the airline. So you've got to be really clear about what is essential and what do we stand for, and then what are just things that are attributes of the product. So what has always been true for Southwest is not changing. We have the best domestic network. We have the best hospitality. We have the most rewarding loyalty program. We have incredible loyal customers. And the centerpiece of all that is we have the best people, and not just in the airline business, in any hospitality business. We are folks that are low ego, and they love to serve our customers. And that's what is not changing.

6:18That is the essential promise of Southwest Airlines. When Herb founded this place, he looked at the industry in the 70s, in the late 60s and 70s, and went, it's high fare. The reliability is no good, and it is no fun to fly. And that's what he set out to fix. Let's lower costs, lower fares so you can democratize the skies and anybody can fly. Let's make this industry, let's make this airline highly reliable, and let's bring some fun, some joy to the journey. And we have great fares. We are the most reliable airline. We won the Wall Street Journal Best U.S. Airline in 2025. I'm very proud to report.

7:00In the midst of all of these changes, too. And we were able to do that. And the heart and soul of the airline, our people, hospitality and fun is still what we stand on. Coming up, Southwest was famous for its old slogan, bags fly free. How is Bob balancing a shift away from that with the need for new revenue? If you ask somebody, what would you like to pay? What are they going to say? Zero. So what you can't do is ignore that fact. So in other words, you either have another billion dollar idea that you can execute, or you're going to accept the fact that you're going to have very underwhelming financial performance relative to your peers.

7:45Stay with us.

7:55You know, I think the criticism against you personally in Southwest had been that you'd been too slow to make changes, right? And you go back to 2024, you had an activist investor who took a position, is really pushing for a lot of changes, Elliott Investment Management. There was even a push to get rid of you. painful time, I imagine, stressful time. But I'm curious how that changed you as a CEO and how you think about leading the company. You know, I don't know that that changed my view at all. Because you look at that period, and yeah, there was, you know, the company needs to be fast. There was a lot of criticism of Southwest Airlines.

8:35Some, you know, I think deserved at least the probably the pace. We're not moving fast enough. But yeah, they're calling to get rid of me, make changes to the board. But you start with what is the best for Southwest Airlines? What is the best for our people? What's the best for our customers? You can't start with what is best for Bob. I love this place. And I'm never going to start with what's good for me. I'm going to start with what is good for Southwest Airlines. So you just ignore all that and you go to work changing the company, driving the transformation, meeting the customer's needs, improving the value proposition for our shareholders.

9:19So, you know, I look at that period actually as I think we'll look back and decide that that's one of the best things that happened to Southwest. And what I mean by that is while Elliott didn't bring anything new, no new idea. What Elliott brought was kind of a kick in the pants to move faster. A sense of urgency. A sense of urgency, a sense of driving the company to be more agile. And so you look back and we accomplished more in the last year that I've seen not just Southwest, but any airline do in a year's period. And you look up today, we're forecasting earnings this year that are over four times 2025.

10:03I definitely want to get into those earnings. I'm curious though, it feels like you were a little bit of in a catch-22, right? You're a guy who spent the bulk of your adult life, the Southwest. You inherited this great heritage from your founder who a key part of his philosophy was doing things differently. Then you're getting pressure from Elliott to do things similar to what other airlines are doing. Do you think that outside pressure, that outside force really helped you? I think it's subtle. So I think everything that we have done was in the plan. So we had had an investor day planned right well before Elliott.

10:47And we had changes like assigned seating already well underway, the addition of extra leg room already well underway. So I give them credit for the kick in the pants, the urgency. But the plan was already the plan. We knew what we needed to change to, A, meet the needs of our customers, and B, improve the value proposition for our shareholders. You look at something like bags fly free and charging for bags. that's a billion dollar benefit from the top line, which ultimately benefits our shareholders. You're generating an extra billion dollars a year. That's right. So you have to take a hard black and white look at that and say, if we must have industry leading returns, because at the end of the day, we are a for-profit company owned by our shareholders, then if I'm going to have a bags fly free policy, which of course everybody likes, bags fly free, who's going to vote against that?

11:47Then I need it. I'd like to fly free. That'd be a good policy too. Of course. If you ask somebody, what would you like to pay? What are they going to say? Zero. So what you can't do is ignore that fact. So in other words, you either have another billion dollar idea that you can execute, or you're going to accept the fact that you're going to have very underwhelming financial performance relative to your peers. So much about Southwest that people just have paid attention to in the last 50 years, right? And a lot of discussion about the unique corporate culture, how you do things differently, how do you bottle that?

12:23And I think kind of go back to the earlier part of this conversation, when you start to make tweaks to things, it's, oh, the soul of the company is lost, right? As a leader, I'm curious how you think about that? Because in some ways, I almost wonder if it's conflating brand attributes, right? Open seating, free check bags, those are things that are part of the brand, but that's not corporate culture in the sense of how you operate as a company. How do you think about and how do you hang on to what you believe is the corporate culture, even though clearly you're making changes because you think the business needs to adapt?

12:58You know, it's funny, all the time I'm asked to get folks want a really complex formula for our culture and I put it in two really simple terms. Number one, we seek to hire the right person and for me that is humble and low ego, somebody that'll fit Southwest Airlines. And then number two, we seek to find somebody who will put the needs of others before the needs of themselves, whether that's another employee or a customer. Colleen Barrett, our former president, always said the core of this airline is the golden rule. And the golden rule is one of our values. I talk to a lot of business leaders and there's always this kind of desire to keep the culture or to change the culture or make the culture go faster.

13:46And sometimes a lot of those culture discussions, those conversations about culture, get thrown out the door when the business isn't challenged or investors are out there unhappy. It's the thing that's easy to get forgotten about when you're trying to make your quarterly numbers. You know, but that means it's not real. A value is or a value isn't. You know, your values are your foundation. And if they go out the window when you're under stress, whether that's financial stress, an activist, whatever it is, then it's not your value. You know, your values are revealed when the times get tough. and so we got into COVID and the first discussions of course were how do we save this business but the second discussion was how do we take care of our people how do we keep them safe how do we make sure that they know that they're loved and cared for despite what's going on how do we keep them from being scared how do we keep them informed so again if the value is real then it has to show out.

14:51I wonder about kind of the results you're seeing internally. You know, here at the journal, we've heard from a lot of people who say they're Southwest diehards and now they're abandoning the airline because of these changes. You go on TikTok. I spent the night on TikTok last night, just scrolling through all of the doomsayers who are very unhappy. And I will say there were some people who were happy with the changes. So just to be fair there. But, you know, when change happens, people let you know about it. We talked about that earlier. I wonder if you're seeing any of that in the bookings. Are people literally giving up or are you still winning over people?

15:29No, you got to be careful always in terms of what we report around non-public information, but two things. No, business is strong. We've been very, very open about that. And then number to we watch customer data every single day. Of course, we're seeing feedback because change is hard. We're not seeing any evidence that folks are booking away from Southwest. We're seeing a lot of enthusiasm for the changes. And we're seeing the changes that we're making to tweak things like boarding and the bin space. We're seeing that very effective. And you always have, I'm not picking on the sources, but you always have to separate social media feedback and data.

16:12Because a lot of times, you know, emotional reactions show up and that's not the same as real information. But no, we listen to all feedback. We're taking action. But no, there is a lot of evidence that this is what our customers wanted. And number two, it's working. Yeah. One of the things that I I know it's very important to a lot of people out there. It shows up in polling information is this idea of affordability in the U.S. right now. A lot of people feel like things are not affordable, whether it's health care or daily life. And clearly that's something that's going to affect you all in the travel industry, definitely.

16:57Are you worried that or do you have any concerns or any thoughts around these new fees, increased ticket prices? there might kind of spur backlash among your customers, or are you still the cheapest to go with? Oh, yeah. This is a big part of offering our customers choice. We're now offering you everything from something that is very premium, extra leg room, sort of everything included down to what we call the basic fare, which are very, very affordable. We have terrific sales, terrific fares at Southwest Airlines. And so you have the choice to buy across a wide range of products, including something that's, if only price is important to you, we've got something that we offer you.

17:47And we measure every single day in the marketplace constantly, are we low or lowest or matched up? And our fares are incredibly affordable. I mean, that's a value here at Southwest as being affordable, having low cost, just like high service is. But no, we're very focused on the fact that you have customers all across the map in terms of what they're looking for. Just ahead, Southwest is feeling more like a traditional airline. But Bob says it's not just about copying the competition. The question is, what do our customers want from Southwest Airlines? Because if I cannot offer that to you, And even if you love me, you're in Nashville, you love Southwest Airlines, but if I can't offer you a route, a product, a lounge, something that you want, you're going to go get that from another airline.

18:42That's next.

18:56For the previous year, you reported about$512 million in adjusted profit, which I'd say is a fraction of the bigger places like Delta and United. But you're talking about, as you alluded to earlier, you're expecting to quadruple your earnings this year. Is that really doable? I mean, that's a huge jump. Well, last year our earnings were$0.93 a share, and we guided at least$4 a share for 2020 six-year. Again, I'm getting in a lot of trouble if I gave you a financial report given that we're mid-quarter.

19:37but what we've continued to say is everything's on track. Now, so we wouldn't have guided if it's not possible. I mean, the way the levers you're doing are, I mean, as you alluded to earlier, a billion dollars extra because of the bag fees and you're probably making a lot more money on the more comfortable seats and those are the levers you have to pull. And cost, there's a huge cost and efficiency play here, a billion dollars a year run rate, and you have the revenue plays. You know, the only wild card, of course, is fuel. That's the one thing we do not control or what fuel prices are going to do.

20:15You know, they're obviously very volatile right now. Yeah, because of the issues in the Middle East. Because of the Middle East issues. And we don't control that. But, you know, kind of fuel aside, the business is doing very well. Well, one of the things, one of the big changes you did away with last year was you got rid of your fuel hedging program, which you all were legendary for so long. Do you regret getting out of that? You know, the evidence is that we were paying about$150 million a year in premiums because hedging, because of the volatility of fuel and oil, hedging premiums became, hedging costs became very expensive.

20:56It was very expensive to buy a hedge. Because the way this works is you'd agree to buy fuel for a fixed price later on. And the gamble is the price you're agreeing to is going to be cheaper in the future because prices are good. Yeah, basically you're buying a right. And because of volatility, the cost of that right increased a lot in the last decade. So it costs a lot more. So it costs about$150 million. So before you ever – before a dime shows up because of the hedge, you're in the hole$150 million box. And evidence across the last decade is we were spending more in premium than we were ever getting.

21:32One of the things that made Southwest successful in the early days was it wasn't copying what competitors are doing. But you're no longer the upstart, right? You guys have been around for more than 50 years. You're in a lot of ways a big dog yourself. Um, but I wonder is what's going to get you to the next level, just copying what everybody else is doing. Is there something you've got to do that's, are you looking for something beyond the levers that we've already talked about? I mean, how do you, how do you think about creativity in a business that is, you know, pretty well defined? There's a lot of players out there, brutally competitive.

22:09Yeah, I think of it very simply, which is, yeah, we are the largest domestic airline, which is a wonderful thing. But to some extent, that's a bit irrelevant in the pursuit of the customer. Because you start with, whether anybody has done something or not, that's not the question. The question is, what do our customers want from Southwest Airlines? Because if I cannot offer that to you, and even if you love me, you're in Nashville, you love Southwest Airlines, But if I can't offer you a route, a product, a lounge, something that you want, you're going to go get that from another airline. We're going to force you to go buy that from a competitor.

22:51So I'm focused on not copying anybody, but pursuing the things that our customers want. Because, number one, that expands the customer base. Number two, it expands the share of wallet that you're willing to spend with Southwest Airlines. And number three, it grows the company. So it's subtle, but that's the difference versus, well, I see that a competitor is doing this, so I want to copy them. What I want to do is knock off of the list all the things that you, as our beloved customer, want from Southwest, and we just cannot provide that to you. Are your customers wanting transatlantic fights? Do they want to go to London and Paris on Southwest?

23:32I know you've publicly flirted with the idea that that might be something you're thinking about. We know, of course, that we have customers who fly long haul international, but they're flying that on somebody else. The good news is today you can now buy that through Southwest on a partner and connect. And of course, we know. Some of those partners are in China, right? One's in China. We have China, Europe, all over the place. We can get you to nearly any place in the world at this point. And we know we have customers who want an even more premium product, basically first class. So no decision, nothing to announce.

24:07But those have to go in the bag on the list of what you're willing to consider because our customers are, we know we have a set of customers that are buying that from another carrier. So the focus right now, though, is on finishing up the implementation, actually optimizing things that we just spent a year putting into place. As you noted, we were still making boarding changes and seating changes, and so we're tweaking there. if you're going to pursue the customer, you've got to be willing to put everything on the list for consideration. Bob Jordan, thank you for coming on Bold Names today. I look forward to seeing you in the skies.

24:43We are looking forward to welcoming you. And again, thanks for having me today. I appreciate it. And that's Bold Names for this week. Our producer is Danny Lewis. Our video producer is Alexis Moore. And our fact checker is Aparna Nathan. Michael LaValle is our sound designer Jessica Fenton wrote our theme music. Our supervising producer is Katie Ferguson. Additional thanks to Kasha Prusalyan, Alexis Green, and Jana Heron. Our development producer is Aisha Al-Muslim. Chris Zinsley is the deputy editor. And Felana Patterson is the Wall Street Journal's head of news audio. For even more, check out my columns on wsj.com.

25:21We've linked them in the show notes. I'm Tim Higgins. Thanks for listening.

25:29Thank you.