Southwest Airlines tells staff ‘difficult decisions’ ahead in push to boost profits

Southwest Airlines has warned employees that it will have to make “difficult decisions” ahead to boost profits as the carrier faces pressure from activist Elliott Investment Management, which has sought leadership changes at the company.

Southwest over the summer announced a host of major changes to its more than 50-year-old business model to drum up revenue. It plans to ditch open seating for assigned seats, offer seats with more legroom that fetch a higher fare and start red-eye flights.

It has also started allowing its flights to be listed on Google Flights and Kayak and has changed its ads to target more younger consumers, COO Andrew Watterson said in a video message to staff last week.

“Now, all that’s not enough. We also have to change our network,” Watterson said in the video, a transcript of which was seen by CNBC.

“We have a couple of difficult decisions heading our way. It’s not station closures. But we need to keep moving the network to help us drive back to profitability,” Watterson said. “And so I apologize in advance if you as an individual are affected by it.”

Southwest plans to release an updated schedule on Wednesday for flights for sale through June 4. The carrier said Watterson’s video was part of a routine video series about the company’s initiatives.

Southwest isn’t planning to announce furloughs, but it could cut its footprint in certain cities and staff could transfer to other locations, according to a person familiar with the matter. The airline is seeking to reduce costs and focus on profitable flying, the company has said.

Other carriers like JetBlue have cut routes this year to deploy aircraft on flights that generate higher revenue.

Southwest is set to provide more details about its initiatives and route changes at an investor day this Thursday at its Dallas headquarters.

Elliott has pushed for a leadership change at the airline and has criticized Southwest management for not doing enough to improve the company’s bottom line. Earlier this month, executive chairman and former CEO Gary Kelly said he would step down after the carrier’s shareholder meeting next year.

The message was reported earlier by the View from the Wing industry blog.