Southwest Cuts Internships and Hiring to Boost Profits

Southwest Airlines is tightening its belt as part of a comprehensive cost-cutting plan, pausing most of its summer internships along with noncontract hiring and long-standing employee team-building events. In a recent staff memo, CEO Bob Jordan emphasized the urgent need for cost control amid pressure from activist investor Elliott Investment Management to improve the carrier’s financial performance.

“Every single dollar matters as we continue to fight to return to excellent financial performance,” Jordan said in the internal message circulated on Monday. The memo detailed that the airline would delay various business activities “when it makes sense” to do so, including corporate hiring, promotions, and the company’s famous employee rallies—a tradition dating back to 1985 where staff gather to hear from leaders about the year’s goals and are treated to food and entertainment.

The decision comes as part of a broader strategic initiative designed to steer Southwest toward industry-leading profit margins. After months of pressure from activist Elliott Investment Management, which had even pushed for a change in the CEO position earlier, an agreement was reached in October. While Elliott won five seats on the Southwest board, the agreement left CEO Bob Jordan at the helm. However, the pressure remains high for the airline to further improve efficiency and returns.

As part of its profit-enhancing measures, Southwest is also reevaluating its route network and operational strategies. Last year, the carrier set out a plan to boost profitability by moving away from its more than 50-year-old open seating model, replacing it with assigned seating and introducing sections with extra legroom. Additionally, the airline is considering the launch of overnight flights and a more aggressive reduction of unprofitable routes—a strategy aimed at optimizing its cost structure and better aligning its offerings with current market demands.

In a related move, earlier in September the airline reduced its operations at its Atlanta base, resulting in significant flight cuts and job eliminations. However, affected employees were given opportunities to apply for positions at other bases, ensuring that Southwest retains its skilled workforce during these restructuring measures.

A spokeswoman for Southwest confirmed the changes, stating, “We’ll continue to evaluate hiring needs on an ongoing basis to determine when it makes sense for the business to resume hiring.” This adaptability is crucial as the airline navigates both internal efficiencies and external market conditions.

Market performance reflects some of the strategic successes and ongoing challenges faced by Southwest. While Southwest’s shares have increased by 14% over the past year, its major U.S. competitors are outperforming it by a significant margin—shares of United Airlines have risen more than 160%, while Delta Air Lines and American Airlines have gained around 70% and 33%, respectively. These comparative gains underscore the intense competitive environment in the U.S. aviation sector and the imperative for cost-cutting measures.

The fourth quarter, which is scheduled to be reported on January 30, analysts will be watching closely to see if these cost reduction initiatives translate into improved margins and more sustainable growth. While the changes may result in short-term disruptions, the long-term focus remains on returning to industry-leading profitability and delivering enhanced value to both shareholders and customers.

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Sources: AirGuide Business airguide.info, bing.com, cnbc.com