Southwest does did not lay people off.
In the nearly 54 years since the airline started flying, it never has laid anyone off, and that was a key part of the company lore. But late yesterday, on a holiday when they hoped nobody was looking, the airline announced that it is slashing 15 percent of its corporate workers, or 1,750 people. This is a terrible, terrible sign for the future of the airline. No matter how the airline tries to spin this, this is not how Southwest does business on its own. Clearly, Elliott Investment Management has far more power than it should.
This is a very sad day.
Southwest is an airline that is currently making big changes. I’ve written about the move toward assigned seating and extra legroom seats as the airline tries to find some kind of balance in its plans to revamp itself and play catch-up after years of neglect under former CEO Gary Kelly. It has added redeyes, and it has just gone into selling through metasearch sites like Google Flights and Kayak. I find these moves to be positive, because they don’t erode what makes Southwest different than the rest. It’s good change.
But as a general rule, when you’re making big changes to your service — and it’s not a time of financial desperation — you don’t want to go laying people off. Cutting back on staff during a business transition is the best way to crush morale just when it’s the most vulnerable. It’s understandable when you’re in dire straits and you need to reduce costs quickly, but when you’ve never done it in the half century you’ve been in business and you aren’t bleeding money? It’s a terribly short-sighted plan.
After all, Southwest’s people are a big differentiator. I know that every airline says that it has the best people, but Southwest… well, it kind of really does. Not every single person will have that warrior spirit all the time, but the percentage of times I’ve found helpful and good Southwest employees is far higher than on other airlines. The 1,750 jobs that are going away are not front-line people, to be clear, but the cuts still have a chilling impact on the entire workforce at the company.
Anyone who has been laid off or been at a company when others are laid off knows just how disruptive and painful it is. Those who need to be focused on their own work are now distracted either because they lost a friend in the layoff or they now have to take on additional work to pick up the slack. And the entire layoff process? It is brutal even for those who remain.
I reviewed a memo outlining that the headquarters building was locked down last night so nobody could enter. Then this morning only those essential to the operation were allowed to come to work. Everyone else had to log on at home where they would receive a link for a virtual meeting. That’s where they would find out if they kept their job or not. It’s all so corporate and terrible, and NOT Southwest-like. I get why they’re doing it this way if you have to do a layoff, but they could have avoided that if they had just… not laid people off.
Even more concerning for a place like Southwest, this creates a culture of fear. A layoff has a long-term impact that is very hard to reverse, and the impact is even bigger during a time of transition. That’s where Southwest finds itself today, and its workforce is feeling the shock right now.
The question that still remains is… why? Why would Southwest feel the need to lay people off when it’s so against the airline’s culture and needs? Yes, it is overstaffed, and that is not a secret. But that’s why you use tools like early retirements and packages. That helps to cull the herd over time without needing to use the scalpel to make cuts. The key part of that phrase, however is “over time.” Apparently it can’t wait, and that is ridiculous.
It’s not like Southwest is in financial danger. It made a $465 million profit last year. Cash levels are steady. Overall, it held about $7.5 billion in cash and cash equivalents at year-end, and it had only about $5 billion outstanding long-term debt.
This is one of the healthiest balance sheets around, even though the income statement is weak. In other words, it has a big war chest, but it’s not making the money it should be making from its operations. That’s why the airline put together the big transformation plan I talked about earlier, and that has real potential. So why do the layoff now? Why be so short-sighted? It has to be pressure from the investors.
Elliott Investment Management saw that big balance sheet and a defensible market position and realized there was gold in them thar hills. It started accumulating a financial stake in the airline, and it began rattling cages. Just when things reached a fever pitch, Southwest and Elliott came to an agreement to back off their fight.
Bob Jordan would stay as CEO, but Elliott would be able to nominate five directors on the board. In addition, Gary Kelly — who I largely blame for letting Southwest stagnate for so many years and get into this position — and other long-time board members would be kicked off. With all the new board members that had already been added, this became a very young board and one where Elliott could presumably have real influence. The detente was set to last until just about a year from now, giving Southwest some runway to prove itself.
It seems to me that Southwest had the wool pulled over its eyes here. CEO Bob Jordan has been with Southwest for ages (excluding a stint away), and he knows the importance of culture. This is not a man who is going to just throw around the idea of layoffs casually. Clearly Elliott and its board members — plus presumably other investors — decided that this needed to happen, and they ratcheted up the pressure.
After all, Southwest’s stock hasn’t done all that much since this saga began. And Elliott is not patient.
This to me smells like Elliott exerting its influence to do the wrong thing from the perspective of long-term success at the airline. On the other hand, it is a great way to slash costs and juice the stock price in the short term. That’s all Elliott cares about. It wants to make money quickly, so it can then cash out and use that money to make more money somewhere else.
That isn’t a surprise in itself. Of course Elliott wants to make more money quickly. What is surprising is just how much influence it would appear that Elliott has to make something as detestable as a layoff actually come to fruition.
I don’t like the precedent this sets, and I worry about what other short-term money grabs may be coming in the future as Elliott tries to squeeze everything it can out of the airline.
In the end, Elliott will make its money, but it will have squeezed the life out of this airline. I find this sickening, but then again, it’s the system we live in. And now the people of Southwest are all paying the price, even those who remain with the airline.
58 comments on “An Ominous Sign for Southwest’s Future as The Airline Lays People Off for the First Time”
Let’s not forget the $750M share repurchase this quarter
Why shouldn’t a profitable company not return excess capital to its owners?
Sell out the culture of over 50 years for a one time stock price bump?
Yup, its all the greedheads wanting more money in the short term, but sell out the future in the long term. Carl Ichan redux
Stock buybacks are used to boost the short-term price of the stock. If you wanted to just return excess capital to shareholders, you would just pay out a one-time cash dividend.
(Buybacks are also an admission on management’s part that the can’t think of anything better to do with the money.)
Or you could pay off debit – as Brett points out, WN has significantly more cash and near-cash equivalents than it does debt. Reducing debt increases (all other things remaining equal) future profit and thus the price of the stock. But it does it more gradually than a buyback.
Stock buybacks only exist to either enrich management with stock-price performance targets in their compensation packages or to get a quick payoff to a short-term investor. Or both.
Warren Buffet’s BH, doesnt issue dividends and isn’t looking for a short term price spike. For high net worth individuals, they would rather see stock buybacks since it appreciates the share’s value without needing to pay tax until the shares are sold.
Under current Tax Law Capital Gains reset on inheritance, for high net worth individuals buybacks are a way to further increase wealth in a way that will never be taxed.
Because that capital can be better used to reinvest into the company making it far more valuable in the long term. That’s what is SUPPOSED to happen before the coporate raiders brainwashed everyone into focusing obsessively on short term returns to shareholders (and shareholders alone and not all stakeholders in a company like employees or communities)
Late stage capitalism spares none.
Exactly this Kenneth. Additional examples… Toys R Us & Sears/ Kmart, the latter finished off by “fast Eddie Lampert.
Toys R Us and Sears were doomed because they didn’t innovate and could not compete with either Walmart, Costco, or Amazon. These companies were dead before Eddie Lampert and hedge funds showed up. The same can be said for JC Penney and Macy’s right now.
And the same can be said for SWA, which would have retained its festival seating and other dated policies. Elliott is odious in that Wolf of Wall Street manner, but it has been compelling SWA to become more of an adult airline.
Was the airline unprofitable? No.
It’s a profitable airline in a mature market niche. But these guys want stock growth not profit.
They should have left WN alone and picked on AA, probably more to fix and more to gain at AA.
I dislike the WN model and seldom use them, but for their core audience they are terrific. It will be sad to see them join the “just another airline” crowd and lose their personality and individual traits that made them different.
Not exactly. In the case with Toys R Us you forgot they were saddled with debts from being leveraged to the hill & it took only one bad quarter to make them collapse. There are plenty of YouTube Videos that made this point. As for Sears, there problems stem as far back as 1970 as my parents were working in the NYC buying offices at the time & as my dad put it he could see the problems looming way back then. It just wasn’t obvious to the public until the past two decades.
And the reason toys-r-us didn’t innovate is because they didn’t have the capital to do it because their private equity owners had sucked it all out of the company via debt from the leveraged buyout and charging exorbitant “management fees” for the privilege of being owned by them.
Sears would likely still be a real going concern if Lampert hadn’t destroyed the company with his asset stripping and mismanagement. Macys may not be in the best spot but they still have a chance precisely because they’re not massively overburdened with debt and still own their assets like their stores so they aren’t going to be charged exorbitant rents by the REIT owned by some hedge fund for quick cash. JC Penny can trace their bankruptcy pretty much to the doorstep of Ron Jonson’s failed pivot, but they got lucky being bought by mall developers with an interest in keeping the chain operating and not bleeding it dry
CF,
Could it be that SWA was operating with old fashioned processes and management technologies and that by implementing new systems (and AI) that these positions became redundant or worse yet got in the way of where they wanted to go?
Angry Bob – No, it’s more like Southwest just bulked up too much expecting more growth and then that didn’t happen. Either way, there are too many people there, but the right way to do it is just stop backfilling positions when people leave and let it drain down. At least, the is the right way to do it when culture matters and you have the financial cushion to do it.
AI is nowhere near where it would need to be to replace the functions of this many corporate workers. You’re on to something pointing out the failure to innovate. Thinking they could get away with running an airline the same way for 40+ years is certainly how they ended up where they are. Southwest’s culture has been proudly stubborn about doing things in a modern way. They were accepting paper tickets until just a few years ago.
Pinning this all on Elliot is false. Elliot wouldn’t have traction for change with its minority stake unless current shareholders disapproved of the company’s operation. The stock has been lagging companies like UA and DAL for a long time. I hope Southwest figures out what it wants to be pretty quickly.
I’m not sure, but it’s entirely possible that WN also has other short-term investors like Elliott involved that management is presuming would side with Elliott in a proxy fight…so they’re just rolling over and hoping that paying off Elliott & co. will get them to just go away and let them go back to being the deeply conservatively-managed company they’ve been for decades.
Or Elliott doesn’t have that much additional backing from other investors, but WN’s management just doesn’t have the intestinal fortitude to go to the mat and fight it out.
“Pinning this all on Elliot is false.”
The million dollar question is: “Would SW have done these layoffs if Elliot never got involved with SW”?
My heart goes out to the employees and their families impacted by this. They chose to work (and keep working) for Southwest because they expected better from the company than this, because they thought Southwest was different than many of its competitors and retained more of a longer term focus instead of trying to make numbers every quarter or month, only for management to do an unexpected about-face.
Agree that Southwest management should be better than this and should be able to reduce heads more “naturally”/gradually, through hiring freezes, packages, and eliminating lower-performing employees.
I’m all for companies being more efficient, but far too often execs of publicly traded companies chase short-term financial results in order to make their numbers/bonuses and to placate investors, even when doing so hurts the company longer term. Frankly, I usually don’t blame the execs for this (though Southwest’s execs in this case may be an exception), as they are simply responding to the incentives provided, but rather investors (including institutional investors such as mutual funds, who should be more longer term minded) who are too focused on the short term and who push execs to chase numbers.
I’ve never worked in the airline/aviation world, but I’ve been on both sides of layoffs at corporate offices. I’ve worked for companies that were constantly changing headcounts at corporate offices (hiring like crazy in boom times, only to flip the switch and almost immediately start laying off people the second the numbers didn’t meet expectations). I’ve also worked for companies that were the opposite, keeping corporate staffs fairly lean and (if headcount reductions were absolutely necessary) letting attrition and hiring freezes do most of the work of reducing a few heads here and there. I’ll let you imagine which of those two types of companies inspired much more long-term thinking and buy-in from employees, and which type of company drove employees to chase short-term numbers and personal accolades at the company’s long-term expense.
Hedge Funds have no business being “activists”, which serve only to line their pockets further and widen the deep inequalities that are at the core of American society. As to Southwest, it does run on a model that has run its course, for sure. It can’t expand much more. It is a one trick pony. A merger is on the horizon and one with one of the US3 network carriers.
Sounds like someone there with the authority to do this is an ally of Elon Musk. DOGE comes to WN. I don’t make this comparison lightly – my brother is likely going to be laid off from a federal agency soon. It’s the hatchet instead of the scalpel approach, especially given all the major changes affecting WN. I never thought I’d say this, but given Elliott’s investment, maybe WN is now a takeover target.
Yes, absolutely. Big Balls will be visiting SW this week.
That and any corporate entity that refuses to play ball with the mob boss ‘n chief & his VP.
YES. DOGE, Elon, and the BAD ORANGE MAN are going to absolutely WRECK SW and eventually ALL of the airlines. It’s soooooo obvious.
It’s called a protection racket… read about it.
In the case of the bloated federal government, a chain saw might be needed. A hatchet simply cannot cut into that tangled mess.
I certainly don’t want to make this a political discussion, but there is a right way and a wrong way to get to efficiency. Even my most conservative friends are not happy with this approach. It will have so many ripple effects on the private sector economy, not the least of which is air travel.
Exactly! Two Palm Beach buddies screwing more people. And no one says anything but “There is nothing we can do” a friend with 29 years was let go today. Gary has a lot of blame here. Sat on his hands waiting for Boeing and did nothing ..
Think twice about your statement. Some of the bloating keeps food, drugs & yes even airplanes safe. The end goal of Doge is nothing more than a money siphoning operation by the richest person on earth & his buddies.
So they’re going to replace the existing money siphoning operation with a new one? Man, that Elon is a wicked genius.
@Tom- Way to show your whole a$$ here.
It is a very sad day at SWA. Thankfully, these were none of the faces of the people we see at the counters, on the tarmac throwing bags and all those flying professionals giving us great service on board. Hopefully the good people losing their jobs were providing redundant services behind the scenes. Was it done incorrectly, absolutely!. Each employee “fired” should have been told face-to-face and treated with the respect they deserve. Unfortunately over x-number of years in this country this lack of respect for others has reached epidemic proportions. A new day will come for SWA, the same way Delta, United, and American remade their airlines to rise again with Delta now considered #1. Note: SWA started out under Herb with $20 fares between DAL-HOU, well today in 2025 dollars that $20 would be $105. You can still buy $80 fares on the route. This great country needs all our airlines and the very good people who make them prosper. To the good people of SWA, I look forward to other excellent trips with all of you.
Having worked at a company raided by Elliott, this is exactly what I expected.
That said, Cranky also hit the nail on the head: what allowed for the Elliott mess to begin at all was years of stagnant leadership.
Both things are sad.
I was at HP during a few corporate layoffs. For the biggest one, I was on the HR team doing the layoffs. I knew everyone on the list, and all my coworkers knew that I knew everyone on the list. It was gutting, but at least we did the layoffs in person, in individual meetings and had plenty of support information in the packets. Even if you were part of the team, you weren’t safe, some got laid off after everyone else. My heart goes out to everyone there, on both sides of the coin. Things will never be the same in the offices at Southwest.
I think it’s time to think “what would Herb do”?
DEJA VU:
Eastern Airlines……………………………
First, no one should underestimate how painful of a day today is for Southwest employees, even if they aren’t being impacted. These layoffs are a massive change from how WN has operated. And the means by which it is being done is brutal. Just. Brutal.
Second, though, many WN employees have said for years that WN has way too many corporate employees. Basic analysis shows that WN’s employee ranks have grown by 20% since 2019 while their ASMs grew by only 7%. Further, they are laying off 1750 or about 15% of their corporate and leadership employees which means they have 10K corporate and leadership employees out of 72K employees as of the end of 2024 which is a pretty high percentage of that workgroup. Those comparisons are out of line with the big 3. WN clearly has been very negatively impacted by delays in MAX deliveries and the MAX 7 but they built an airline post covid that did not match the capacity they could fly – even before factoring in their inability to get the revenue associated with the type of service that consumers want.
Third, WN has settled with all of their frontline groups – something only DL has done among the big 4. They made the decision to settle w/ their frontline labor groups even before the revenue is coming in. It was a given that the administrative side had to be reset while the company needs to deliver the revenue to support its unionized groups’ costs.
And finally, WN came into the covid era w/ an outstanding balance sheet but it won’t stay that way if they don’t get their earnings back up. They are in the best position of perhaps any airline in their restructuring and will be fine. A lot has to change including becoming nimble and efficient which is something they lost years ago.
Elliott is an evil, selfish predator – typical of activist hedge funds. Buy your way in, take over from the inside then ultimately blow the business out for every penny you can make. All in the name of “shareholder value”. Efff the employees, the company and the communities they serve. These guys are nothing more than Gordon Gekko. But……it was WN’s feckless leadership which led them to being nearly dead in the water which, in turn, led to pirates coming on board the ship. To be fair, they made some attempt to get rid of Elliott but only to somehow to fail badly at it. Now, we could be looking at the TWA-zation of a once great airline. Herb is rolling in his grave, no doubt.
As for Elliott: I’ve been very critical of the people who have cheered on this Luigi guy. That was all wrong. However, I think I would feel differently if a hedge fund manager like Elliott was involved. Just sayin’.
“As for Elliott: I’ve been very critical of the people who have cheered on this Luigi guy. That was all wrong. However, I think I would feel differently if a hedge fund manager like Elliott was involved. Just sayin’.”
So you’re not really all that critical of Luigi, just refocusing the same corporate anger towards Elliott & that’s OK as they too are scum.
Frank Lorenzo at CO 2.0 I was there at 1.0
I hope other airlines don’t use this as air cover to enact layoffs of their own. Similar to what’s happening in the tech industry–nobody wants to go first but once the first domino falls, the rest quietly follow suit.
There’s one ATL-based airline that has a LOT more back office people than required. They can/should be redeployed back to other divisions that are hurting right now.
Expect another surprising announcement shortly, maybe even this week.
Ah, the corporate raiders are at it again, I hate that they somehow managed to reinvent themselves as “activist shareholders”, raiders and private equity are great at destroying anything they touch, destroying a company, its culture, and its ability to be a long term going concern as the line their pockets with misappropriated company assets and wealth
At one time I flew SW fairly often, then didn’t for year but after getting the companion pass for 2024 we flew them maybe 6 times. My observation is that their fares are too high compared to competitors. With a companion pass it isn’t bad but w/o it I wouldn’t likely fly them.
Elliott is just one of the bad things of capitalism and someone who has no interest in the long term success of a company. Its sad people like that exist. It is one thing when you have a company with terrible management but SW was in decent shape.
Is one of their issues due to being overly generous with employees forced their fares to be less competitive? Again this year they are offering a companion pass via a credit card. A rather low bar for many to get.
It can take a long time for good management to turn around and build up a quality workforce but it doesn’t take long for bad management to destroy a company.
Stock buybacks usually are bad long term for companies unless they are buying stock at low prices.
Yeah, the future for SW doesn’t look good. AA is already a poor airline due to poor employees, we don’t need another airline torn apart.
I’m curious to hear other’s thoughts. I haven’t experienced much of that “Southwest spirit” in the better part of the last decade. I grew up in Baltimore and have always traveled a lot (often with SW because of their base at BWI) so know the exact spirit you’re taking about. Here’s my scale: 5) Exceptional, 4) Good, 3) Neutral / Neither Adds nor Takes from the Experience, 2) Indifferent / Noticably Bare Minimum Effort, and 1) Rude / Detracts from the Experience.
The only “1” service I’ve received from any airline has been from SW, and multiple times. Maybe it’s different on the West Coast and in Texas (I’m flying Chi, MIA, BWI, and LGA mostly). I haven’t experienced anything above a “3” on SW. In contact I consistently see AA giving “2”, Frontier giving “3” and occasionally “4”, while United and Spirit give “4” and often enough “5”.
I think SW stayed behind the times while also losing their passion for hospitality along the way over the past 10-15 years. That’s why I have avoided flying them, despite having had their CC and status. And I don’t think I’m alone.
I avoid connecting through BWI because I don’t like the impersonal or at times even frosty vibe of their flight crews. It just doesn’t fell like Southwest. MDW is also not very good. Crews based in BNA are much better. DEN is fine. DAL, HOU, PHX all very good. Maybe it’s just a reflection of different parts of the country?
Sad to see these cuts. I feel like Elliott is out foxing Southwest. The way they went about it is really unfortunate and a concern.
How come I don’t see any of the frontline groups that got huge payraises in the last 3 years volunteering to take a small ‘haircut’ to keep their backoffice folks onboard?
And before you flame me, I’ve taken 4 haircuts to salary to keep people and it paid off well in the long run.
In other words, every airline employee not in direct operation service better always be prepared. High fares plus high salaries = layoffs during any downward cycle in demand or fares.
I don’t understand why everyone is so upset about this (CF – that includes you). Southwest let things stagnate and drift for FAR too long. For an airline that sees itself as a budget carrier, it was leaving large quantities of money on the table and missing out on many of the tricks that were making other budget carriers tons of money – go look at Ryanair to see what I mean. In life, if you let a problem fester too long, the you are not going to like the solution that eventually happens.
Yes, every passenger says “I want a nice fluffy ethical airline” but ultimately it’s price and schedule that count. Unless a company does something really bad (eg lock employees in leg shackles, and make them perform hard labor like breaking rocks for 12 hours per day) most customers don’t really care that much.
The layoffs will wake up the entrepreneurial spirit in many employees at SouthWest… partly through fear and partly because they realise that SouthWest is a private company and not a bureaucracy.
It’s really grim for those who are laid off (and I know from personal experience)… but this will make SouthWest stronger in the long run.
Maybe its because some of us have been through this, and have empathy for treating employees better than logging in to a Zoom meeting from home to find out your career is over.
I think the bigger point is *HOW* they are doing layoffs. This isn’t a division-by-division meeting and separation. They had everyone watch a TEAMS meeting that was essentially prerecorded advising if they are still employed or not.
That is a massive departure of the pro-employee Southwest culture that Herb & Colleen built.
These should have been done in person, not via a TEAMS meeting.
A familiar story. Continental = Lorenzo….
TWA = Icahn…. American = USAir = (America West Posse)
There are two others that merged instead of an agressive takeover action without lock out or agressive actions. I know enough Republic Airline ( I was one for a short time) employees to be able to say NorthWest
did not lockout or do mass firings. Delta bought Northwest and for the most part treated them fairly. (But I have heard there were some legitimate seinority and base assignment grumblings)….
As usual when I bring up any of these points I get agressive attacks as if I was the evil perpetrator! ( probably ex managers or people involved profiting financially)
BTY I PERSONALLY was saved from having my pension saved only because the america west possee was not able to in spite of their best efforts spending over 1 millon to try to get the court case heard first in Pheonix and the in Dallas/Fort Worth. In New York we prevailed and be came one of the few airline labor groups to not lose pensions. We also did not lose our health benefits.
On my first day of work 1-11-87 at AA i was in a group of ten new hires. The one I was across table from and I were paired up to share safety and company info paperwork. He was 58 years old on his first day at AA. He had 40 yrs seniority with TWA. He could not uproot his family,home and life. So he took early retirement given 10% of what he would get if he stayed and went to a toxic atmosphere in STL. They did NOT want their seniority affected by people from out stations coming there. So he showed me his first pension check of $100.01… So technically he did not lose his pension. But ( by his choice) he started over at 58 years old at AA. A couple years later he did move to Nashville to stay with AA to go to the short lived Nashville hub.
And then we lost touch…
I know there will be multiple corrections, management & investors critisism and the usual punctuation, spelling and camling me a whiner or big baby. I can take it! I’m so lucky and blessed to be someone to get a pension administerd by a company who gets paid to make sure we will get our pensions for life.
Now, we will watch the new SWA owners chop up SWA and slowly sell off planes, gates,facilites and Peanuts
Interestingly, the same investment company has done a similar thing at Honeywell dividing the company into three business units to push more profit out of the aerospace division.
Seemingly this type of aggressive push for restructuring is working. No doubt both businesses will increase their bottom lines but at what cost to the working environment? ‘Direct costs walk on two legs’ is a phrase I’ve encountered in the aerospace world…
The reverse mortgage has begun.