Southwest Airlines’ share price was rising in pre-market hours as the airline announced plans to cut 1,750 corporate jobs, marking the first mass layoffs in its 53-year history.
The cuts, representing 15% of the airline’s corporate workforce, will mainly be completed by the end of the second quarter and include the elimination of 11 senior leadership positions.
The restructuring is part of Southwest’s broader efforts to boost profitability and improve its balance sheet amid increasing investor pressure.
“This decision is unprecedented in our 53-year history, and change requires that we make difficult decisions,” Chief Executive Officer (CEO) Bob Jordan said.
“We are at a pivotal moment as we transform Southwest Airlines into a leaner, faster, and more agile organization,” he added.
Southwest shares rose 2% in premarket trading following the announcement.
Southwest Airlines layoffs to save $300 mn by 2026
The job cuts are expected to generate significant cost savings for the airline.
Southwest estimates that the reduction in workforce will save 210 million dollars in 2025 and 300 million dollars in 2026.
However, the restructuring will also result in a one-time charge of 60 million to 80 million dollars in the first quarter of 2025, primarily for severance and post-employment benefits.
The layoffs come as part of a three-year business plan that Southwest introduced in September, which includes expanding partnerships, offering more vacation packages, and using aircraft sale-leasebacks to free up capital.
Adding to the leadership shakeup, Southwest last week appointed Tom Doxey as its new chief financial officer, replacing Tammy Romo, who announced her retirement.
Doxey, a former United Airlines and Breeze Airways executive, is expected to help steer the airline through its restructuring efforts.
Cost-cutting measures a result of pressure from Elliott Investment
The airline’s cost-cutting measures come in response to pressure from activist investor Elliott Investment Management, which has urged Southwest to improve efficiency and modernize its business model.
The company has already taken steps in this direction, including moving away from its signature open-seating policy, a defining feature that had distinguished it from competitors like Delta, United, and American Airlines.
Despite these changes, Southwest’s stock has struggled.
While the US Global Jets exchange-traded fund has gained 30% over the past year, led by airlines like United and Delta, Southwest’s shares have dropped 13%.
The airline has also missed analysts’ earnings forecasts four times in the last 10 quarters, contributing to investor skepticism.
Why analysts are optimistic about LUV stock?
The company has struggled to keep up with competitors, as its stock has underperformed over the past year due to missed earnings forecasts and lower-than-expected revenue growth.
However, despite its recent struggles, analysts see potential for a rebound in Southwest’s stock.
John Staszak of Argus Research has recently upgraded the stock to a buy rating with a $35 price target, implying a potential 17% gain from current levels.
One reason for optimism is Southwest’s projected increase in available seat miles, which reflects more efficient aircraft use.
The airline has also ordered 136 new planes for delivery in 2025, allowing it to reduce fuel costs by 6% compared to last year.
Additionally, Southwest plans to allocate $1 billion in free cash flow toward share buybacks, which could further boost earnings per share and improve investor confidence.
The airline currently holds $8 billion in cash, providing financial stability during its restructuring phase.
With lower costs, increased revenue opportunities, and operational adjustments, Southwest is aiming for a turnaround in 2025.
However, execution will be critical as the airline seeks to regain investor trust and compete more effectively with its larger rivals.
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