It’s being broadly reported that Southwest Airlines is freezing hiring and promotions to save money, and also pausing summer internships. But the details of cost cuts are actually much deeper, and hit at the core of Southwest’s identity.
Retaining top talent can be tough when you tell people who have opportunities elsewhere (because they’re top talent!) that they cannot be more rewarded where they’re at. And doing this at the same time you cut off bringing in new talent can be a recipe for disaster. But that’s just brain drain at the top. What Southwest is doing is actually cutting its investment in culture, which is what sets them apart from other carriers.
Here’s the weird message that went to employees telling them they won’t invest in in-person events to save money. This isn’t about ‘saving the company’ or a battle cry to win against external threats. Instead they are going “to fight to return to excellent financial performance.” And they’ll do this by “delivering excellence, enhancing efficiencies, and capturing value throughout the Company.”
As we’re focused on modernizing our business, we’re also intent on lowering our costs, which have outpaced our revenue growth, pressuring our financial returns. An extremely important cost initiative is underway to help us make significant changes to become a lean, efficient and agile company.
You’ll begin to see and feel efforts related to our cost initiative in the coming weeks, including some hard decisions I’ve had to make. One example-we’re further limiting discretionary spending this year, and I’ve made the tough decision to cancel the 2025 Rallies that were planned for Dallas and Phoenix, along with the big screen events across the system at AMC Theaters. I’m disappointed that we won’t gather to kick off our plan for the year at Rallies, celebrate our accomplishments, and spend time together in person. The timing simply isn’t right when we’re striving for cost discipline and focusing on a leaner organization that’s closer to the work, closer to the frontline, and closer to our Customers.
Beyond cancelling Rallies, we’ll delay other key business activities when it makes sense. This includes Noncontract internal and external hiring and promotions. We’ll also pause on most summer internship offers. Every single dollar matters as we continue to fight to return to excellent financial performance.
While I am absolutely optimistic about our plan and where we are headed, we’re facing some of the biggest challenges yet. The dynamics of our industry are more complex than we’ve ever seen in our history. Customer expectations continue to evolve, and we must keep pace. As we focus on delivering excellence, enhancing efficiencies, and capturing value throughout the Company, we, too, must evolve-and we must fight to win, just like we always have.
Backing off on investments in the culture seem like small ball savings. Perhaps it strikes me as such a bad move because it reminds me of the low point of Continental Airlines.
When Gordon Bethune arrived there in 1984, initially as Chief Operating Officer and then as CEO, employee morale was in terrible shape, operational performance was poor, and they were pinching pennies. One of his first symbolic moves was to restore a bit of dignity and pride by reversing some of the penny-pinching measures of the previous regime. One of those was shutting down the decorative fountain in front of the airline’s Houston headquarters. Bethune had it cleaned up and turned back on, symbolizing a fresh start and a return of pride in the workplace.
Turning the fountain back on was a small gesture that told everyone: ‘We care about this place, and we want it to look like we do.’
Southwest has capitulated to Elliott Capital which sees the carrier’s unlevered balance sheet as a pot of gold. Board chair Gary Kelly is out, but CEO Bob Jordan keeps his job – for now.
Southwest Airlines CEO Bob Jordan
Now they’re flailing around looking for revenue – they’re moving to assigned seats so they can sell seats, and extra legroom seats so they can upcharge passengers, all while giving up fees for early boarding – but that won’t come until 2026. In the meantime they’re cutting costs, and this move takes costs out of employee morale and from their talent pipeline.
It doesn’t make sense to spend money that lacks a coherent story for how it earns the business a return, but fundamentally what sets Southwest Airlines apart is its culture. Around a quarter of their employees are new since the pandemic, so it’s a culture that continues to need to be refreshed.
Southwest hires for personality, and sends welcome kits, swag, to new hires before they start training. When a class completes training, the whole company comes out into the corridors of headquarters to welcome them and cheer them with music blasting as they walk a red carpet.
Front line people from gate agents to flight attendants at Southwest Airlines usually seem to like their jobs, which can be a contrast from other carriers. That’s notable for such a heavily-unionized airline.
Investment in the culture would seem to be more important now than ever. When they were under attack from an activist investor, there was no employee groundswell movement to fight back. There was no ‘Keep Delta My Delta’ movement, like what employees there did when Doug Parker and US Airways tried to take them over. They wouldn’t have stayed silent for Herb Kelleher or James Parker.
Ultimately the airline’s management needs to start with a positive message for employees about what’s at stake, what they’re fighting for, and offer an inspiring idea for everyone to strive towards that bigger than themselves. ‘We need to make more money’ and so reducing investment in the work experience isn’t that message.
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