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SWAPA in the News: Where Did Our LUV Go?

SWAPA in the News: Where Did Our LUV Go?

February 26, 2025

Texas Monthly — Southwest Airlines’ first-ever involuntary staff cuts come amid a host of changes forced by a hedge fund. Can the Dallas-based company maintain its distinctive culture while acting more like competitors it long outperformed?

 

Wisecracking, chain-smoking, Wild Turkey–swilling Herb Kelleher once delivered a surprisingly sober speech about how Southwest Airlines should draw inspiration from the brave Americans who fought in World War II. “Today we don’t have the opportunity to be heroines or heroes in the vivid, in the dramatic, and, indeed, in the bloodcurdling ways” of that conflict, said the company’s cofounder and then-CEO. “But we do, each of us, have the opportunity to display the same spirit.”

 

Kelleher went on to call Southwest employees “the greatest generation” in the history of the aviation industry, having helped the carrier notch its twenty-sixth consecutive year of profitability—an accomplishment unmatched by any other major U.S. airline. “I don’t ever want Southwest Airlines to meet disaster,” he told the pilots, flight attendants, and other staff gathered for a pep rally at the company’s Dallas headquarters. “I believe that you can continue the success of the last twenty-six years for the next twenty-six years.”

 

This week—almost 26 years to the day since Kelleher said those words—Southwest met with what he very likely would have considered a disaster. For the first time since it began flying, in 1971, the airline announced mass involuntary layoffs. Roughly 1,750 employees were let go, representing 15 percent of the corporate workforce, though none of the frontline workers, such as pilots and flight attendants, were among them.

 

Layoffs were made, in part, to appease a hedge fund that breached Southwest’s gates last year. In June 2024, Elliott Investment Management, which styles itself as an “activist” investment firm, announced that it had acquired 11 percent of Southwest’s shares (ticker symbol: LUV) and demanded that the airline overhaul its board and fire its CEO, Bob Jordan. Elliott claimed that the company’s leaders—including members of Kelleher’s “greatest generation”—were “rigidly committed to the status quo” and that their “long tenures have contributed to Southwest’s stagnation.”

 

Company executives hammered out a compromise that placed six new members—all Elliott-approved—on the board and accelerated the retirement plans of Gary Kelly, the board chairman and former CEO. Jordan got to stay on (for now) after he announced a transformation of the airline to accomplish many of the objectives Elliott had insisted upon, including the massive cost-cutting that led to the layoffs.

 

For an airline that has long touted its familial employee relations, handing out pink slips makes plain that Southwest is having its own seriously sober moment. Can the airline soar by changing so much of what has made it distinctive—without alienating passengers and employees? Or, by mimicking its competitors, will it end up mimicking their lackluster financial performance of the past few decades?

 

Southwest has framed the layoffs not as the end of its employee-first culture, but as a continuation. Jordan, a 37-year company veteran who was in the audience during Kelleher’s “greatest generation” speech, back in 1999, evoked Southwest’s “entrepreneurial founding spirit of the 1970s” in a memo to staff this week. Explaining that the company is getting “leaner,” Jordan wrote, “Our People will continue to be what sets us apart, and I have confidence in our ability to succeed because of you. . . . There is much work to do to transform and become the Company we want and need to be, but together, we’ve got this!” 

 

Considerably different sentiments popped up on LinkedIn among those discussing the layoffs. To suddenly former Southwest employees whose titles ranged from career mobility coach to technology manager, coworkers—or “co-hearts,” as Southwest calls them—sent hokey messages such as “I wish nothing but LUV as you spread your wings to new beginnings.” Others expressed concerns about the company’s future.

 

Jody Reven, president of the Southwest Airlines Pilots Association, shares those worries. A few days after the layoffs, he echoed an oft-repeated Kelleher phrase about putting employees first, customers second, and shareholders third. “We’ve lost that,” Reven told me. “And this kind of savage way to do a layoff will make it tougher for us to get back to that. I’m hopeful that we can, through the union side. But I need to see something from this board of directors to show that we can get back to that—or else it’s just business.”

 

The layoffs certainly were a business move for Elliott. Southwest’s earlier settlement with the firm had limited it to holding no more than 14.9 percent of company shares. But on February 18, the same day that the airline cut employees loose over Microsoft Teams and locked them out of its Love Field headquarters, Southwest amended its deal with Elliott to allow it to increase its stake to 19.9 percent.

 

Senior executives at Southwest and representatives of Elliott declined interviews with Texas Monthly, but Reven and others at the company believe that Elliott’s handpicked board played a direct role in both the new agreement with the hedge fund and the layoffs.

 

Here’s why: Last September, Jordan said Southwest planned to cut $500 million in costs as part of a multiyear transformation plan. A month later, in a call with stock analysts, he explained that some of those savings would come from reducing the workforce by two thousand employees. But he wasn’t talking about layoffs. He was talking about attrition and buyouts—tactics Southwest had used in the past, most notably during the COVID-19 pandemic.

 

Then, during another analyst call, in January, Jordan’s language about cost-cutting grew more urgent. “We will be relentless,” he said. “The focus will be on achieving that rate as quickly as possible.” He soon added that “corporate overhead,” by which he meant staffing at headquarters, had grown too quickly and would therefore be targeted. Even as Jordan was saying that, Southwest insiders told me, the company was already consulting with outside experts on how it might conduct its first-ever mass layoffs, which are projected to save it $210 million this year and $300 million the next.

 

So what changed between September 2024’s multiyear $500 million cost-cutting plan and 2025’s do-it-now mass layoffs? One big thing: Elliott’s chosen board members, who comprise a majority, were seated on November 1.

 

That fact has not been lost on aviation-industry observers, who have seemed downright apoplectic about Southwest’s layoffs. Matthew Klint of the site Live and Let’s Fly wrote that he believes Elliott “is perfectly willing to destroy Southwest Airlines for short-term gain.” He also noted that, so far, short-term gain hasn’t amounted to much. Since the news of Elliott’s stake in Southwest first broke, last June, the airline’s stock is up just under 9 percent, or about $3 a share. That lags the S&P 500, which gained 15 percent during the same time frame.

 

Gary Leff, who runs the site View From the Wing, speculates that Elliott might push to plunge Southwest into debt and use that debt to fund stock buybacks that will boost the value of the company’s shares. The airline has, in fact, announced that it will buy back $2.5 billion worth of its shares. It spent $250 million on stock buybacks in the fourth quarter of 2024 and plans another $750 million in buybacks in the first quarter of 2025.

 

That $1 billion in spending is more than three times the cost savings Southwest says it’ll attain from laying off 15 percent of its corporate workforce. Leff’s conclusion: The airline “no longer run[s] on Southwest Heart.”

 

Reven sees things that way too. “We’re doing this financial engineering now, where we just live for the next dividend and the next stock buyback, and then we’re surprised that our stock doesn’t go up,” he said. “It means we’ve lost sight of something.”

 

The airline always avoided layoffs before, even when it had good financial reasons to scale back. It didn’t lay off workers during the 1990–1991 Gulf War, when thousands of other airline employees lost their jobs, nor did it cull its workforce after the September 11 terrorist attacks, nor during the financial crisis of 2008. Fort Worth-based American Airlines, by comparison, laid off workers in 2001, 2003, 2008, 2012, and 2020.

 

Southwest did offer early-retirement packages and voluntary unpaid leave in response to the devastation of the COVID-19 pandemic, when it was losing money on an annual basis for the first time since 1972. More than a quarter of the airline’s workforce—about 16,900 employees—accepted, which helped Southwest continue to eschew layoffs. Gary Kelly, who was still CEO at the time, told me in 2021, “We’ll have a punch list of things that we will do to save our company, and getting rid of our people will be the last thing that we have to resort to after we’ve tried everything else.”

 

Considering that Southwest in 2025 is profitable, it’s hard to see the current moment as a crisis worthy of upending decades of employee-first decision-making. Still, company insiders this week told me that the airline had staffed up under the assumption that travel would come roaring back following the pandemic. That contributed to higher costs that steadily eroded Southwest’s bottom line, as business travel has not recovered to prepandemic levels, and leisure travel has swung up and down.

 

Also cutting into profits are higher-paying labor contracts Southwest has inked with its gate agents, mechanics, pilots, and flight attendants. Company expenses have risen 30 percent since 2018. And while costs went up for many airlines during that same period, Southwest’s have outpaced the increases of its competitors. American’s costs, for instance, were up about 18 percent in the same time frame.

 

Read the story on Texas Monthly.