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Southwest Airlines says it will introduce assigned seats in 2026

DALLAS | Southwest Airlines executives on Thursday unveiled their vision for Southwest 2.0, an airline that for the first time will give passengers assigned seats, charge them extra for more legroom and offer red-eye flights but bags still will fly free.

The airline announced that it plans to end the open-boarding system it has used for more than 50 years and start flights with assigned seats during the first half of 2026 as it responds to shifting consumer tastes and tries to reverse a three-year slump in profits.

CEO Robert Jordan and other Southwest executives outlined the future refresh during an investor meeting in Dallas where they tried to convince shareholders that they can increase revenue by winning over younger and more affluent customers.

The moves away from Southwest’s simple business model and quirky traditions come as airline management faces pressure from activist investor Elliott Investment Management. The hedge fund blames management for Southwest’s recent underperformance compared with its closest rivals, and wants to replace Jordan and most of the Southwest board.

Along with introducing assigned seats, the airline will make about one-third of them higher-priced premium seats with up to five inches of extra legroom. That will require removing a row of seats on some planes. Work to retrofit the fleet will start in the first half of next year and be completed by the end of 2026, executives said.

Southwest said those moves, along with changes to its network, will add about $1.5 billion in pretax earnings in 2027.

Before Thursday’s event started, Southwest announced a $2.5 billion share-buyback program designed to make existing shares more valuable. It also said that a third-quarter revenue ratio will rise by up to 3% instead of being between flat and down 2%.

Shares of Southwest Airlines Co. rose 8% in midday trading.

In dumping open seating, Southwest said its surveys show that 80% of its customers now want to know their seat before they get to the airport instead of having to search for open seats when they board the plane.

As part of the switch, the airline will have four airfare tiers, each offering more convenience and comfort. Southwest officials said the premium product will appeal to business travelers.

Southwest stopped short of changing another of its longtime characteristics: letting passengers check up to two bags for free, a break from fees that are charged by all other leading U.S. airlines. Executives said it’s the most important feature in setting Southwest apart from rivals.

U.S. airlines brought in more than $7 billion in revenue from bag fees last year, with American and United reaping more than $1 billion apiece. Wall Street has long argued that Southwest is leaving money behind.

Southwest, which has built years of advertising campaigns around bags-fly-free, estimated that bag fees would raise about $1.5 billion a year, but eliminating the perk could drive away passengers, costing the airline $1.8 billion, or a net loss of $300 million a year.

Southwest had contemplated an overhaul for months, but the push for radical change became even more important to management this summer, when Elliott Investment Management targeted the company for its dismal stock performance since early 2021.

Southwest is trying to fend off a possible proxy fight as early as next week with Elliott, a hedge fund controlled by billionaire financier Paul Singer that is the airline’s second-largest shareholder. Along with firingJordan, it wants to replace two-thirds of Southwest’s board. Elliott has a slate of 10 director candidates, including former airline CEOs.

Southwest gave ground this month, when it announced that six directors will leave in November and Chairman Gary Kelly will step down next year. On Thursday, it named a former AirTran and Spirit Airlines CEO to its board.

The airline is digging in to protect Jordan, however.

Jordan argued that the plan laid out Thursday should satisfy investors.

“We do not believe that a proxy fight is in the best interest of the company, and we remain willing to work with Elliott on a cooperative approach,” he said.

Jordan said the refresh plan had been in the works a long time. “For Elliott to call that plan rushed and haphazard, in my opinion is inane,” he said.

The hedge fund responded by dismissing the turnaround plan as too little, too late, and reiterated its argument that the Southwest CEO needed to go.

“Another promise of a better tomorrow from the same people who have created the problems we face today,” a statement Elliott issued after the investor presentation stated. “Without credible leadership that can execute, this plan – filled with long-dated promises of better performance – risks becoming the latest in Southwest’s long series of failed improvement initiatives.”

Company management headed into the investor day having angered an important interest group: its own workforce. The airline told employees Wednesday that it will make sharp cuts to service in Atlanta next year, resulting in the loss of 340 pilot and flight attendant positions.

Employee unions are watching the fight between Elliott Investment Management and airline management, but they are not taking sides. “That’s between Southwest and Elliott, and we’ll see how it plays out,” Alison Head, a flight attendant and union official in Atlanta, said.

However, the unions are concerned that more of their members could be forced to relocate or commute long distances to keep their jobs. Southwest’s chief operating officer told employees last week that the airline will have to make “difficult decisions” about its network to improve its financial performance.

Shawn Cole, a founding partner of executive search firm Cowen Partners, whose firm has worked for other airlines but not Southwest, believes Southwest is too insular and should follow the recent examples of Starbucks and Boeing and hire an outsider as CEO. He thinks many qualified executives would be interested in the job.

“It would be a challenge, no doubt, but Southwest is a storied airline that a lot of people think fondly of,” Cole said. “If Boeing can do it, Southwest can do it.”

Longshoremen sue owner and manager of ship that caused bridge collapse

BALTIMORE | A group of Baltimore longshoremen have sued the owner and manager of the ship that caused the Francis Scott Key Bridge collapse, arguing the companies should compensate them for wages lost while the port was closed in the aftermath of the deadly disaster.

The class action lawsuit adds to a slew of other legal claims alleging the ship’s Singapore-based owner and manager, Grace Ocean Private Ltd. and Synergy Marine Group, knowingly sent an unseaworthy ship into U.S. waters.

Six construction workers were killed in the collapse, which halted most maritime traffic through Baltimore’s busy port for months as crews worked around the clock to clear thousands of tons of mangled steel and concrete from the main shipping channel. During the initial cleanup, many longshoremen found themselves out of work.

“This was equivalent for longshoremen what the world experienced during COVID, when everything stopped,” said plaintiff Ryan Hale, who’s worked at the port for over a decade. “I’ll never forget, I wake up in the morning, getting ready for work, turn on the news — I had to flip the channels twice to make sure it wasn’t a horror movie.”

The port fully reopened once the channel was cleared in June, but traffic didn’t immediately bounce back because some ships had been rerouted as the global supply chain made adjustments in the immediate aftermath of the collapse.

“Nearly six months later, shipping traffic in the Port of Baltimore has still not returned to pre-disaster levels,” attorneys for the longshoremen wrote in their claim. “Claimants’ incomes were and continue to be entirely dependent on the flow of cargo vessels in and out of the Port of Baltimore.”

The lawsuit was filed Tuesday on behalf of roughly 2,200 members of the International Longshoremen’s Association union.

Baltimore attorney Billy Murphy, representing the plaintiffs, said they’re seeking to recover lost wages in addition to punitive damages.

Murphy held a news conference Thursday at which three of the plaintiffs spoke about how the port closure affected them. They said their access to jobs and benefits is based on seniority, so working fewer hours has serious implications because it could mean sliding back down the totem pole.

“Everything we obtain is acquired through hours,” Hale said.

A suit filed last week by the U.S. Department of Justice provided the most detailed account yet of the cascading series of failures on the Dali that left its pilots and crew helpless in the face of looming disaster. That complaint alleges mechanical and electrical systems on the massive ship had been “jury-rigged” and improperly maintained, culminating in a power outage as it approached the bridge. The crew’s efforts to restore power in time were also hindered by other problems on the ship.

Darrell Wilson, a Grace Ocean spokesperson, has said the ship’s owner and manager “look forward to our day in court to set the record straight.”

FBI agents boarded the Dali in April amid a criminal investigation into the circumstances leading up to the collapse. Agents boarded another container ship managed by Synergy while it was docked in Baltimore on Saturday.

The Dali was leaving Baltimore for Sri Lanka when its steering failed because of the power blackouts. Six men on a road crew, who were filling potholes during an overnight shift, fell to their deaths as the bridge crumbled beneath them.

While the ship experienced a series of electrical issues before and after it departed Baltimore, the blackout that occurred as it approached the bridge likely resulted from a loose electrical connection, which had been damaged by the vibrations on the Dali, according to recent court filings.

Engineers on the ship manually restored power by reconnecting the tripped breakers, but it again switched off because of a problem with the fuel pumps. Attorneys allege the fuel supply to the ship’s generators was improperly reconfigured as a cost-cutting measure after Grace Ocean purchased it in 2017.

Grace Ocean and Synergy filed a court petition days after the collapse seeking to limit their legal liability in what could become the most expensive marine casualty case in history. Since then, a number of entities have filed opposing claims, including Baltimore’s mayor and city council, families of the victims, local businesses and insurance companies. They’ve all been consolidated into one sprawling liability case and the deadline for most claims to be filed was Tuesday.

Average rate on a 30-year mortgage slips to 6.08%

The average rate on a 30-year mortgage in the U.S. slipped to its lowest level in two years this week, boosting home shoppers’ purchasing power as they navigate a housing market with prices near all-time highs.

The rate dipped to 6.08% from to 6.09% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.31%.

The last time the average rate was lower was on Sept. 15, 2022, when it was 6.02%.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners seeking to refinance their home loan to a lower rate, increased slightly this week. The average rate rose to 5.16% from 5.15% last week. A year ago, it averaged 6.72%, Freddie Mac said.

Mortgage rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy decisions. That can move the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

The average rate on a 30-year mortgage is down from 7.22% in May, its peak so far this year. Rates have been mostly declining since July in anticipation of last week’s move by the Fed to cut its main interest rate for the first time in more than four years.

Fed officials also signaled they expect further cuts this year and in 2025 and 2026. The rate cuts should, over time, lead to lower borrowing costs on mortgages.

The average rate on a 30-year mortgage rose from below 3% in September 2021 to a 23-year high of 7.8% last October. That coincided with the Fed increasing its benchmark interest rate to fight inflation.

When mortgage rates rise they can can add hundreds of dollars a month in costs for borrowers. The housing market has been in a sales slump going back to 2022 as elevated mortgage rates put off many would-be homebuyers. Sales of previously occupied U.S. homes fell in August even as mortgage rates began easing.

Still, as rates have looked more attractive in recent weeks, more homeowners have applied for home loans.

Mortgage applications jumped 11% last week, according to the Mortgage Bankers Association. The strong gain was due partly to a 20% increase in applications by homeowners seeking to refinance their existing loan to a lower rate.

“Given the downward trajectory of rates, refinance activity continues to pick up, creating opportunities for many homeowners to trim their monthly mortgage payment.,” said Sam Khater, Freddie Mac’s chief economist. “Meanwhile, many looking to purchase a home are playing the waiting game to see if rates decrease further as additional economic data is released over the next several weeks.”

While lower rates give home shoppers more purchasing power, a mortgage around 6% is still not low enough for many Americans struggling to afford a home. That’s mostly because home prices have soared 49% over the past five years, roughly double the growth in wages. They remain near record highs, propped up by a shortage of homes in many markets.

Mortgage rates would have to drop back to near rock-bottom lows from three years ago, or home prices would have to fall sharply for many buyers to afford a home. Neither scenario is likely to happen any time soon.

Economists generally expect mortgage rates to remain near their current levels, at least this year. Fannie Mae projects the rate on a 30-year mortgage will average 6.2% in the October-December quarter and decline to an average of 5.7% in the same quarter next year. It averaged 7.3% in the same period in 2023.

The number of Americans filing for jobless aid falls

The number of Americans applying for unemployment benefits last week fell to the lowest level in four months.

The Labor Department reported Thursday that applications for jobless claims fell by 4,000 to 218,000 for the week of Sept. 21. It was the fewest since mid-May and less than the 224,000 analysts were expecting. Last week’s figure was revised up by 3,000.

The four-week average of claims, which evens out some of weekly volatility, fell by 3,500 to 224,750.

Applications for jobless benefits are widely considered a proxy for U.S. layoffs in a given week.

Weekly filings for unemployment benefits have fallen two straight weeks after rising modestly higher starting in late spring. Though still at historically healthy levels, the recent increase in jobless claims and other labor market data signaled that high interest rates may finally be taking a toll on the labor market.

In response to weakening employment data and receding consumer prices, the Federal Reserve last week cut its benchmark interest rate by a half of a percentage point as the central bank shifts its focus from taming inflation toward supporting the job market. The Fed’s goal is to achieve a rare “soft landing,” whereby it curbs inflation without causing a recession.

It was the Fed’s first rate cut in four years after a series of rate hikes in 2022 and 2023 pushed the federal funds rate to a two-decade high of 5.3%.

Inflation has retreated steadily, approaching the Fed’s 2% target and leading Chair Jerome Powell to declare recently that it was largely under control.

During the first four months of 2024, applications for jobless benefits averaged just 213,000 a week before rising in May. They hit 250,000 in late July, supporting the notion that high interest rates were finally cooling a red-hot U.S. job market.

U.S. employers added a modest 142,000 jobs in August, up from a paltry 89,000 in July, but well below the January-June monthly average of nearly 218,000.

Last month, the Labor Department reported that the U.S. economy added 818,000 fewer jobs from April 2023 through March this year than were originally reported. The revised total was also considered evidence that the job market has been slowing steadily, compelling the Fed to start cutting interest rates.

Thursday’s report said that the total number of Americans collecting jobless benefits rose by 13,000 to about 1.83 million for the week of Sept. 14.

—From AP reports