Dive Brief:
- Southwest is beginning to reap the financial benefits from its transformation plan, which eliminated open seating and its bags-fly-free policy, executives said on a Q3 2025 earnings call Thursday.
- The airline’s net promoter score bounced back to the same levels it was prior to its announcements in March that it would eliminate its bags-fly-free policy for most customers and change the terms of its loyalty programs and flight credits.
- The airline expects $1 billion of incremental EBIT from assigned and extra legroom seating in 2026. The incremental value of a full annualized year of bag fees of roughly $700 million, according to CEO Bob Jordan.
Dive Insight:
Southwest is turning the corner after a shaky start to its transformation plan that coincided with a dip in travel amid tariff-induced economic uncertainty.
The airline reported third quarter operating revenues of $6.9 billion, up 1.1% year over year, according to an earnings report. Loyalty revenue increased 7% year over year, and new co-branded credit card acquisitions up double digits.
Southwest executives described the changes as a boon to both customer experience and revenue, but some industry experts question whether previously loyal customers will remain with the airline and the impact on financials if they don’t.
“While they’ve seen some success in the way of additional revenue, they aren’t really pointing out the fact they are losing, potentially, revenue from people who don’t want to fly with them because of the changes,” Katy Nastro, travel expert at Going, said in a statement.
But as the airline eliminates features some customers held dear, they’re also instituting others that customers welcome.
The airline is rolling out free Wi-Fi, sponsored by T-Mobile, for all Rapid Rewards loyalty members, beginning Friday.
Southwest also launched the sale of assigned seats and seats with extra legroom, for travel beginning Jan. 27, 2026. So far, the airline has retrofitted more than 400 aircraft with extra legroom seating.
“But we have aircraft out there that have the extra legroom retrofit configuration, and folks flying on those aircraft — we have more than 400 converted — are giving us a 4-point higher NPS score than those without, and that's without being able to book yourself into extra legroom.” Jordan said.
Surveys Southwest conducted show that potential and current Southwest customers preferred assigned seating. Andrew Watterson, chief operating officer at Southwest, said customers are also voting for assigned seating with their wallets.
“We see literally a knife edge on Jan. 27 in our bookings of pre- and post-assigned seating, we see a knife edge yield improvement,” Watterson said. “So clearly, customers are voting with their wallet as well as the surveys that they like fine seating, extra legroom.”
The airline is considering opening lounges, which it has yet to do, to widen its offerings for consumers, particularly premium customers, Jordan said.
Other major carriers have invested heavily in airport lounges in recent years as they try to court wealthy customers.
