CHICAGO: Southwest Airlines’ first company-wide layoffs in its nearly 54-year history are aimed at shoring up profits, but they run the risk of undermining a company culture of putting employees first that made it stand out from rivals and cultivated a loyal fan base.
Until this week, the U.S. carrier never resorted to mass layoffs and furloughs, even as the industry underwent crushing downturns.
But soaring costs and sagging profits forced its hand on Monday to announce that it will slash 1,750 jobs, or 15% of its corporate workforce.
Conor Cunningham, an analyst at Melius, said the layoffs go against the company’s long-built culture, which he described as “the special sauce that makes everything possible.”
The layoffs also reflect a new reality at Southwest, where activist investor Elliott Investment Management’s nominees currently hold five of 15 board seats and CEO Bob Jordan is under pressure to produce a fast turnaround.
At meetings with Southwest’s unions last year, Elliott had emphasized the need to “right-size” the company’s headquarters, according to a person who attended the meeting.
Jordan has outlined a strategy that seeks to lift Southwest’s operating margin to at least 10% in 2027 from 2% last year.
Robert Mann, a former airline executive who now runs a consulting firm, said the job cuts suggest there is a greater urgency to deliver on those goals. “It’s a nod to the pressure that they’re under from Elliott,” Mann said.
Elliott declined to comment.
Southwest Airlines to cut 15% of corporate jobs as part of cost-saving plan
Southwest said while the layoff decision was “extremely difficult,” it has tried to provide support and care to the affected employees.
“The strength of Southwest’s culture is critical to the success of our business and our ability to serve our customers,” the airline said in a statement. “Our people will continue to be what sets us apart as we drive the company forward.”
Activist investor’s growing influence
Southwest boasted 47 consecutive years of profit before the pandemic. But planemaker Boeing’s aircraft delivery delays, soaring labor costs and changed travel patterns after the COVID-19 pandemic have all combined to depress earnings.
Lackluster profits coupled with falling shares brought Elliott to Southwest’s doorstep last year. The hedge fund launched a bitter boardroom battle, calling for new leadership and wholesale changes to its business.
A truce last October allowed Jordan to keep his job. But the “cooperation” agreement between Southwest and Elliott is due to end next year.
Other developments also point to the activist investor’s growing influence. On Wednesday, Southwest said its agreement with Elliott has been amended to allow the hedge fund to increase its maximum allowable stake to 19.9% from the previous limit of 14.9%.
The company also said Chief Transformation Officer Ryan Green, who was entrusted with rolling out the turnaround plan, will step down on April 1.
His exit follows the departures of Chief Financial Officer Tammy Romo and Chief Administration Officer Linda Rutherford.
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