The company will lay off 15% of its corporate staff, totaling approximately 1,750 individuals, starting in April. This move marks the first involuntary layoffs in Southwest’s history, affecting senior leadership roles significantly. Specifically, 11 senior leadership positions, including those at the vice president level and above, will be eliminated.
The airline anticipates this restructuring will lead to cost savings of $210 million this year, with a projected $300 million in savings by 2026. However, there will be an initial financial impact, with one-time charges ranging from $60 million to $80 million for severance-related expenses.
CEO Bob Jordan addressed employees, describing the layoffs as a ‘very difficult and monumental shift’ aimed at transforming the company by focusing on efficiency and cost reduction. The decision follows a challenging period for Southwest Airlines, highlighted by a significant drop in share prices since early 2021. Although earnings exceeded expectations in January, the improvement was largely attributed to increased airfares rather than operational efficiency.
In a strategic move last year, Elliott Investment Management acquired a $1.9 billion stake in Southwest and subsequently advocated for a leadership overhaul. This led to a change at the CFO position, with Tom Doxey stepping in, and also prompted a shift in seating policy from open seating to assigned seating, allowing the airline to monetize premium seating options.
The operational challenges came to a head last December when an outdated scheduling system failed to cope with adverse weather conditions, resulting in the cancellation of 16,700 flights during a peak travel period. This incident underscored the need for technological upgrades and better operational practices.
Interestingly, as of 2021, the airline had maintained a record of never having had layoffs. Former CEO Gary Kelly emphasized a commitment to employee welfare as a key company value. Despite this past assurance, current market pressures and internal assessments have made the current layoffs unavoidable.
Southwest Airlines’ decision to reduce its corporate workforce signals a pivotal moment for the company as it seeks to navigate financial pressures and operational inefficiencies. This strategic adjustment is aimed at fostering a more resilient and efficient organization moving forward.
