Today on The Air Show podcast, we released an interview with Southwest COO Andrew Watterson and CFO Tom Doxey. You should listen to that, but I decided to write a companion piece to give some more context about what Southwest has just pulled off.
January 27 was a big day in the history of Southwest Airlines. It was the first day of assigned seating, and that meant Extra Legroom seating had arrived as well. It was also the culmination of a remarkable 18 months filled with massive change on a scale that most of us can’t even fathom. Southwest executed its plan flawlessly, and Chief Operating Officer Andrew Watterson and the whole airline deserve enormous credit.
When I sat in a conference room on Southwest’s campus back in September 2024, I was far from convinced. That day, Southwest had its investor presentation where it rolled out its plan called “Southwest. Even Better.” We didn’t know at the time that this was a partial plan with changes ahead, but even this seemed ambitious to me. As I said when I wrote about the event:
The plan itself seems like it can work, but execution is the hard part. If it does go as planned, this will return Southwest to a respectable level of financial performance by 2027.
This, I thought, was a lot to put on one person’s shoulders. After all, Andrew Watterson is Chief Operating Officer, but he is also in charge of the commercial side of the business. I like Andrew a lot, but I wasn’t sure anyone could overcome the inertia of Southwest doing Southwest things and actually make such big change happen.
It turns out I was wrong. Southwest made this happen and a whole lot more. Further, with Southwest announcing earnings last week — but more importantly providing guidance — it’s going to return to a respectable level of financial performance in 2026, even earlier than predicted, and it has maintained a solid operation in the process.
That 2024 plan didn’t include the addition of checked bag fees or changing the boarding process, so it got even more complex from an execution standpoint. Just think about some of the things that Southwest has changed since that time:
- began flying redeyes
- started charging for first and second checked bags
- switched from open seating to assigned seating
- introduced basic economy and started charging for various seat assignments
- installed and started selling Extra Legroom seating
- changed the boarding process from the position numbers on poles to groups
- finally started interlining with other airlines and now have six up and running (China Airlines, Condor, EVA, Icelandair, Philippine, and Turkish)
- joined IATA
- began selling through online travel agents (Google, Expedia, etc)
- replaced its ops system
- reduced aircraft turn times
Regardless of how you feel about each initiative, these all required big effort. Some required substantial tech work, both back-end and front-end. Otherwise required physical reconfiguration of aircraft. Still others meant employee change and education being required. That doesn’t even include the customer education required for such a change.
Meanwhile, the bar for Southwest to succeed was pretty low. It had failed to make so many changes in past years. Remember when it was going to partner with Volaris and WestJet? Remember how long it took to finally get a new reservation system? This was not an airline that was to be believed. But since that 2024 meeting, Southwest hit every target. That is downright impressive.
What pushes this even further into the realm of “extraordinary” is that this was done while Andrew and his team were fixing Southwest’s operation. We all remember that miserable meltdown after Winter Storm Elliott in 2022. This was a broken airline operationally. Now, it just got first place in the Wall Street Journal’s airline rankings which are mostly based on operational metrics.
According to Anuvu data, Southwest finished third in on-time performance for the full year with 77.82 percent of flights arriving within 14 minutes of schedule. That was just behind Hawaiian and Delta. It was also one of only three airlines that canceled less than one percent of flights.
They say this kind of work is like doing open-heart surgery on a patient who is awake. It’s not easy. But sure enough, Southwest pulled it off. That would be impressive for any airline, but for an airline that has failed to deliver so much in the past like Southwest? It’s a near-miracle.
With this work done, Southwest can now bask in the glow of a vastly-improved financial outlook. You may remember when JP Morgan airline analyst Jamie Baker said “We’d characterize Southwest’s 4Q [2025] guide as Very Aggressive and Seemingly Unobtainable.” That turned out to be true, but only because of the government shutdown. In fact, Southwest positively surprised analysts with its revised downward guidance not being as big as expected. But it’s 2026 that got Wall St so excited that the stock spiked nearly 20 percent.
In 2026, Southwest now expects earnings per share of at least $4. Unit revenue is going to be up at least 9.5 percent in Q1 year-over-year, so again, that’s another part of Andrew’s team over in Revenue Management that’s doing big things. I keep saying “at least,” because Southwest hasn’t figured out the full benefit of seating charges yet since it just rolled out. Upward revisions are likely, so margins in the neighborhood of the Deltas and Uniteds of the world are easily in the realm of possibility.
There was no real question that this would be a big financial victory in the near-term. The question now is whether this can build Southwest for long-term success even though it’s far more similar to other airlines than it’s ever been. And that is where we focused our discussion on The Air Show. Have a listen and hear what Andrew and Tom had to say, but if we can look at this entire project from afar, it’s hard not to appreciate what the airline has been able to do.
