Just over one year into Tony Roach’s tenure as head of customer experience at Southwest, his priority remains the same: “We're still at the trust game,” Roach said.
The goal, however, has changed.
The carrier wants to make fundamental changes to the way it does business without eroding the customer-friendly image that differentiates the Southwest brand.
Two pillars of its unique approach have fallen by the wayside. The airline eliminated open seating in favor of assigned seats last year, citing customer preference, and ended its marquee “bags fly free” policy earlier this month.
But Southwest also added the option of more leg room and expanded some loyalty membership benefits while rolling back others.
Amid the rapid changes, Roach faces a challenge akin to walking a tight rope: keeping loyalty among longtime customers while enticing a new cohort.
Trust remains front of mind as new business realities and pressure to increase profit alter what Southwest offers customers.
“It may be more important now because at the end of day, it's a matter of our people — are they going to trust that we're just the Southwest that they've always enjoyed with a better experience?” Roach told CX Dive in an interview. To compound the challenge, the airline is simultaneously working to gain the trust of a new group of customers who weren't previously in the picture, Roach added.
CX Dive spoke to Roach in January — ahead of last week’s changes and prior to his promotion from chief customer officer and SVP to EVP of customer and brand. He now leads customer research, customer experience, digital, product and loyalty, marketing, corporate communication, customer care, and culture and inclusion.
Profit pressure
Activist investor Elliott Investment Management has been pressuring Southwest to increase profits for months.
Last year, the hedge fund, led by Paul Singer, announced it had amassed an 11% stake in the company and began to wield its influence to demand changes — it even tried to oust CEO Bob Jordan. Disappointed with Southwest's earnings results, Elliott launched a pressure campaign.
In fiscal year 2024, Southwest’s operating revenue grew 5.3% year over year to $27.5 billion, while its net income from non-operating expenses remained flat, according to a fourth quarter 2024 earnings report. But its stock has fallen since 2021.
In the long arc, Southwest has been profitable while leading the industry in customer experience, according to Jon Picoult, founder and principal of Watermark Consulting. It reported 47 straight years of profitability until the pandemic and turned a profit in 51 out of 52 years.
Southwest, though mostly profitable, has seen its stock price slide
“There's no other airline that has any kind of track record that comes close to that,” Picoult said. “I'm not denying that they are in a rough patch right now. Sometimes companies that are customer experience legends, they encounter rough patches.”
In September, the airline rolled out “Southwest. Even Better,” which promised to revolutionize customer experience to boost profits, a move experts said was meant to appease Elliott. In October, the airline came to an agreement with Elliott for Jordan to remain at the helm. At the time, five Elliott-nominated individuals were appointed to the board.
Then, last week, Southwest announced a spate of changes: It eliminated its bags-fly-free policy for most customers, set an expiration date to flight credits, changed the number of Rapid Rewards points customers earn on flights, introduced variable pricing to redemptions, and will now charge change fees for basic fares.
While some of these shifts in policy are the industry standard, they fly in the face of the airline’s brand.
“It seems clear to me that this is all driven by Elliott,” said Ben Mutzabaugh, managing editor of The Points Guy.
In addition, the airline had its first major layoffs in the company’s 53 years in February.
“It definitely feels as though Southwest is trying everything that they've sort of never had on the table before in an effort to generate more revenue,” said Katy Nastro, a travel expert at Going.
Eliminating its marquee free bag policy for most customers is the clearest example, she said. Previously, at a September 2024 investor day presentation, the airline had said that it would not touch its bag policy.
The airline had always looked at its bags-fly-free policy as a loyalty discussion, Southwest’s Roach said prior to the airline rolling back the policy.
“It's about if giving you two bags brings you back, does it make you choose us over people who will charge you for those same two bags?” Roach said. “And as long as we feel like the loyalty outweighs the revenue we would get from the fees, it's in our best interest to go after the loyalty.”
But at a JP Morgan Industrials Conference last week, Southwest changed its tune. The free baggage perk had cut into profits, Jordan said.
“And on the revenue front, over many years, we also fell behind in revenue generation as our peers introduced a host of things that we did not pursue at Southwest, like bag fees, basic economy, assigned and premium seating monetization, dynamic pricing, redemptions and much more. The cost increases, combined with not pursuing these key revenue opportunities resulted in margin contraction at Southwest compared with our better-performing peers,” he said.
Bag fees generate billions in profit for airlines, according to the Department of Transportation. American Airlines, for example, made $1.36 billion in bag fees in 2023 to Southwest’s $73 million.
But activist investors often do more damage than good by focusing on the short term, said Fred Reichheld, a fellow at Bain & Co. and the creator of the net promoter score. The problem, he said, is that Southwest doesn't “have the evidence that they're making progress with a rigorous enough case, a database case, to sort of stave off the short-termers.”
While charging for bags may generate short-term profit, experts are skeptical whether the move will serve Southwest in the long haul.
“Come the third quarter, does this really make a difference profit wise, or is this going to be the worst gamble that they've ever taken?” Nastro said.
What do customers want?
In July, when Southwest announced it was saying goodbye to open seating after more than 50 years, Jordan said the change stemmed from customer preference. Among potential customers, 86% preferred assigned seats, Jordan said on a July earnings call. Notably, 80% of current Southwest customers said they prefer assigned seats.
“Further, when a customer defects from Southwest to one of our competitors, our open seating policy is cited as the No. 1 reason why," Jordan said. “The answer is clear: There is more demand for Southwest Airlines with an assigned seating model.”
Roach’s teams conducted months of research to look at different seating methods, cabin layouts and consumer preferences writ large.
“That robust research turns into a business case turns into, ‘Alright, we're going to go transform,’” Roach said. The company’s new plan, “Southwest. Even Better,” is “about delivering experiences that customers want in 2025 that we're evolving to.”
Roach has also worked on how the airline handles customers who face travel disruptions.
“You expect that when you travel, something could happen,” Roach said. “What puts fuel on the fire, though, is when the airline just really botches how they handle that.”
Southwest has invested in technology to provide flyers real-time communication about their flights. It has upgraded its app and mobile channels to make it easier for customers to change or update their trip and for employees to remediate disruptions.
“What customers want at the time of need and despair, they want options,” Roach said. “They want context of what's going on. They want options on how to fix it. And they want to know that you care.”
The airline’s net promoter scores are all up year over year. It’s not just by Southwest’s metrics, either. The airline ranked No. 1 in J.D. Power’s customer satisfaction research in 2024.
The biggest change — and what Roach is most proud of — impacted customers who had their trips disrupted: Among those customers, Southwest customer satisfaction score improved by 34% year over year, Roach said.
We're still at the trust game. ... It may be more important now because at the end of day, it’s a matter of our people — are they going to trust that we’re just the Southwest that they’ve always enjoyed with a better experience?
Tony Roach
EVP of customer and brand
But the changes made last week — including the elimination of two free checked bags — were met with uproar from loyal Southwest customers.
None of those changes are consumer-friendly, experts told CX Dive.
A Southwest email to customers announcing the shifts in policy acknowledged potential customer dismay.
“We recognize these changes may be a disappointment to some,” Jordan said in the email.
"We have heard and acknowledge the disappointment felt by some of our customers. There is a difference between what you are known for and what people value. We have been known for open seating and Bags Fly Free, but research shows that flexibility, value, and great service are what drive a customer to fly with us," Roach said in a follow-up email to CX Dive Wednesday.
Jordan addressed the company’s reversal on bag fees at the JP Morgan conference. The airline has expanded how customers can buy Southwest flights — as of February, they can now book on Expedia — and customers on those channels don’t always care about free checked bags, he said.
“In contrast to our previous analysis, actual customer booking behavior through our new booking channels, such as metasearch did not show that we are getting the same benefit from our bundled offering with free bags, which has led us to update the assumptions,” Jordan said. “It's also important to note that while all of these initiatives are new to Southwest, they are not new to the industry. That adds additional confidence in the ability to execute as planned and in achieving the financial targets that are laid out.”
Roach concurred with that. Asked if there's any data that shows that Southwest customers were not coming to the brand for the two bags flying for free, Roach said the issue was it wasn't bringing new customers in.
"It’s the inverse of that, actually — we weren’t getting additional customers by offering two free checked bags. Our consumer research shifted as we entered new-to-us booking channels like Expedia and added distribution through meta-searches like Kayak, Skyscanner, and Google Flights. We weren’t getting additional value or customer share by offering a bundled product that included free checked bags, which led us to update our previous assumptions."
Keeping loyalty amid rapid change
Southwest has enjoyed unusual brand loyalty as a folksy, light-hearted airline. But as the company evolves, the challenge is to keep longtime customers while driving new customers to the brand.
“It’s going to be a tough nut for them to crack because in addition to backtracking on all of the things they backtracked with, the loyalty program itself has been diluted,” said Mutzabaugh. “If people feel any kind of disassociation with a brand over some of the policy changes, all of that makes the loyalty less sticky.”
Brand perception is at risk, too.
“Southwest has traditionally always been sort of marching to the beat of their own drummer,” Nastro said.
Bags-fly-free and open seating were marquee features of the airline. Without them, a Southwest fare starts to look like any other airline fare, Nastro said.
Customers primarily make flight decisions on price and convenience, so Southwest will be able to attract new customers, experts said. But it's always easier to keep loyal customers than to constantly be on the lookout to acquire new ones.
But Roach said open seating doesn’t make or break the brand.
“There's a difference between what you're known for and ultimately what people really value in what you provide,” he said. “But in the research, what people ultimately care about from us is the flexibility, the great service we provide. The value provided in changing your seating model doesn't necessarily prevent you from all of a sudden not being able to provide value, flexibility, transparency, all those types of things.”
The brand is adding more flexibility and offering more premium experiences, including the option for 5 inches of extra legroom — a desire seen among both potential customers and Southwest’s most loyal customers, Roach said.
It will also offer highest-tiered loyalty members free extra legroom, and Rapid Rewards A-list preferred members and customers on business select fares will be able to check two bags for free. Rapid Rewards credit card members will be credited one checked bag.
Southwest has expanded its loyalty program through a partnership with Icelandair, allowing customers to book international trips with points, too. And in January, the airline freed customers to use a combination of cash and points.
“Using currency for us is a good thing,” Roach said. “So giving people who may not have enough points to redeem for a full ticket the option for cash and points basically says, ‘Hey, even if you only have a lower amount of points, those are still valuable because you can put those to use now, just like the other folks that have more points in their account.’”
The goal, Roach said, is to make the program and points more valuable to customers.
“We want you to use them, and so making these things available is our way to do that,” Roach said.
Loyalty programs — and cobranded credit cards — are big business in the airline industry. Delta Air Lines, for example, brought in $8.4 billion in deferred revenue through its Sky Miles loyalty program in 2023.
A rewarding loyalty program also encourages a customer to fly more with that airline, Roach said.
“There's no question that when people become a member of the program, we see more loyalty, we see more flying behaviors from them, we see more engagement in the brand,” Roach said.
But some of the changes have experts like Nastro wondering just who is getting prioritized and pushed into the loyalty program.
“They're sort of caught in between the loyalty of these loyalists that choose to chase elite status and … these loyalists that aren't necessarily elites, but they choose to fly with Southwest because they're able to save on things like checked bags, and maybe they only fly once or twice a year, but they choose to do so with Southwest,” Nastro said. “Unfortunately, it appears that they're prioritizing the loyalists that are spending more.”
Editor’s note: This article has been updated to include comments from Southwest.
