Muhammad Ali may have had the “Thrilla in Manila,” but Herb Kelleher had “Malice in Dallas.”
In 1992, Southwest Airlines (Love) Stevens Aviation threatened a trademark lawsuit over use of the “Just Plane Smart” slogan.
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But rather than go to court, Kelleher, Southwest's co-founder and then-CEO, went old school and settled the matter by arm-wrestling with Stevens Aviation's chief executive, Kurt Herwald.
Kelleher lost the match, but was allowed to use the slogan in exchange for a $5,000 charitable donation and granting Stevens legal rights to the slogan.
The event is just one more story in the colorful career of Kelleher, who died in 2019 and was known for dressing up as Elvis Presley and appearing on television with a paper bag over his head.
He is also credited with revolutionizing air travel by virtually inventing low-cost, low-fare airlines.
“We have a strategic plan,” he once said. “It's called 'getting stuff done.'”
One of those things was the open seating option, where passengers chose their seats when boarding the plane.
The model worked for many years, but then finances began to deteriorate and Southwest had to scramble.
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Southwest CEO: Open seats are 'no longer optimal'
The airline recently introduced several changes, including the possibility of operating overnight flights for the first time and ending the 50-year tradition of open seating.
“It's clear that the open-seating model that served us well for so many years is no longer optimal for today's customer,” Bob Jordan, president and chief executive, told analysts during the company's press conference. second quarter earnings call. “I want to stress that this decision was not taken lightly.”
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Jordan said the airline had been “very thorough and deliberate in how we approached the issue, conducting multiple sophisticated research studies over many months that assessed customer preferences and looked at different types of cabin layouts and seating methods.
“Our research shows that 80% of our customers prefer an assigned seat, and 86% of our potential customers prefer an assigned seat,” he said. “Additionally, when a customer leaves Southwest for one of our competitors, our open seating policy is cited as the number one reason.”
The airline said second-quarter revenue rose 4.5% from a year earlier to $7.35 billion, but profit fell more than 46% to $367 million, or 58 cents a share.
Jordan acknowledged the company's problems, telling analysts that overall results “are not where we need them to be and do not reflect what we are able to deliver.”
“We remain confident that the new revenue management system will be a driver of long-term revenue improvement,” he said. “This requires assessing all opportunities and being prepared to build on some of the selfless policies that have been in place for some time, while remaining true to our values.”
The assigned seating plan has not been well received in some circles.
“By eliminating its open seating policy, its last remaining significant distinction, Southwest is finally admitting that it has become something like American, United and Delta,” he said. The Chicago Tribune said In a July 30 editorial, it reads: “So by all means, Southwest, assign seats and make extra money. But remember your customer.”
“And we'll miss the days of paying $49, grabbing the first seat we found and racing off with a fun crew.”
Elliott: Southwest Air changes are 'too little, too late'
Elliott Investment Management bought $1.9 billion of Southwest Airlines stock in June and has sought the ouster of Jordan and Chairman Gary Kelly, citing what it called “poor execution and leadership's stubborn unwillingness to deliver on the company's strategy.”
The investment firm was not impressed with Southwest's announced plans, describing them as “obvious attempts at self-preservation.”
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“Southwest's announcement of revenue-enhancing initiatives, which aim to offer assigned seating, premium seating options and late-night flights, comes more than a decade late and after a 50% decline in its stock price over the past three years,” the firm said on behalf of partner John Pike and portfolio manager Bobby Xu. “Too little, too late is not a strategy. It's time for new leadership.”
Analysts have reacted to Southwest's actions by adjusting their ratings and stock price targets.
Citi lowered its price target for Southwest to $28.25 from $29 and affirmed a neutral rating on the stock.
The airline's announced revenue management strategies appear to run counter to the view that the current management team is unwilling to change, the investment firm said in a research note.
But Citi also said that “the jury is still out on whether domestically-oriented discount airlines can transform themselves in such a way that their unit economics can begin to approach those of the more robust network airlines.”
A few days earlier, Deutsche Bank analyst Michael Linenberg had downgraded Southwest from buy to hold with a price target of $29, down from $32.
Despite reporting record revenue driven by record passenger volumes, Southwest's profit margins remain pressured as revenue generation continues to lag behind its elevated cost structure, the analyst said.
While Southwest's plans to add assigned seating, a premium inflight product and launch late-night flights encourage Linenberg, he said these initiatives will take time to implement and are not without execution risks. Therefore, the investment firm sees pressure on earnings in the near term, the analyst said.
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