Southwest Airlines Co. (LUV), currently engaged in a dispute with shareholder Elliott Investment Management L.P., unveiled the next steps in its comprehensive three-year strategy designed to boost revenue opportunities. The Board of Directors has also sanctioned a $2.5 billion share buyback program, signaling strong confidence in the strategic plan and new revenue-generating initiatives.
In pre-market trading on the NYSE, Southwest’s shares were up approximately 4%, reaching $29.51.
Ahead of its Investor Day briefing in Dallas, Southwest projected that by 2027 it would achieve approximately $4 billion in cumulative incremental earnings before interest and taxes (EBIT), and an after-tax return on invested capital (ROIC) of 15% or more, significantly exceeding the weighted average cost of capital.
The company’s multi-year plan aims to achieve an estimated cost savings run rate of $500 million by 2027. These savings will be realized through strategies such as minimizing hiring, enhancing scheduling efficiency, leveraging supply chain opportunities, and improving corporate efficiency.
Southwest’s fleet strategy is anticipated to lower average aircraft capital expenditures to roughly $500 million through 2027.
The airline has also introduced several new commercial initiatives intended to enhance the customer experience and drive value while maintaining flexible policies like free checked bags.
Southwest plans to expand its consumer appeal and increase demand by introducing an assigned seating model. Recognizing that passengers now prefer assigned seats, the company expects to start selling these seats in the second half of 2025, with the first flights utilizing the new model in the first half of 2026.
Moreover, Southwest will offer extra legroom options, providing up to five additional inches of pitch for about a third of its seats while maintaining the standard economy seat pitch. These new seating options are expected to boost demand and increase revenue per passenger.
To further enhance customer choice and add value, Southwest will roll out new capabilities and products designed to realize revenue potential. These include global airline partnerships, the introduction of Getaways by Southwest, and enhancements to the Rapid Rewards program.
Icelandair will become Southwest’s first partner, with a launch anticipated in 2025 through Baltimore-Washington International Airport, which will serve as the initial U.S. gateway.
In 2025, Southwest intends to introduce Getaways by Southwest, a new product offering customizable vacation packages. This will feature the airline’s generous cancellation policy and flexibility, extending its no-change-fee policy for flights to hotels and other components of packaged vacations.
