Needing to shake up what critics say is a stagnant revenue model, Southwest Airlines has placed Tim Lyon in the newly created role of vice-president of pricing.
The Dallas-based carrier said on 21 August that Lyon, who previously worked as director of domestic pricing at American Airlines and US Airways, ”is focusing additional attention on the carrier’s yield and pricing discipline”.
”Lyon brings more than two decades of airline industry experience and will oversee the carrier’s pricing department, coordinating closely with business units that guide revenue management and sales,” Southwest says.
Attempting to regain its form as a consistently profitable company and reverse its sagging performance, Southwest said last month it would abandon its signature open seating model in favour of adding premium seating options.
Southwest’s current pricing structure draws criticism from airline analysts such as Xavier Smith, director of research, energy and industrials at market research group AlphaSense.
”If you rewind the story, maybe 10 years ago or so, Southwest was the low-cost carrier,” Smith says. “They’re not the lowest-cost carrier anymore because of their maintenance cost, their system cost, their pricing.”
”That’s their identity, but their prices aren’t the lowest for consumers, and that’s a problem,” he continues. “So I think the biggest issue is they need to change their cost structure – and that’s going to take a while.”
Southwest has reportedly been losing market share in recent quarters to rival major US carriers Delta Air Lines and United Airlines, both of which offer competing basic economy products.
Additionally, Southwest long held an advantage by not charging fees for changing itineraries, an approach that appeals to business travellers who value flexibility. Delta and United eliminated most – but not all – change fees during the Covid-19 pandemic.
”I think it is a difference-maker,” says analyst Bill Swelbar of the Swelbar-Zhong Consultancy. “This game is played on the margins, by taking incremental pieces of business from somebody else. And I think United and Delta are flat building better mousetraps.”
Southwest has been under pressure from activist shareholder Elliott Investment Management to overhaul the company’s leadership and board of directors. Elliott recently identified 10 candidates to replace members of Southwest’s board, including former airline chiefs David Cush and Gregg Saretsky.
Swelbar believes Elliott is “right to push [Southwest] around a little bit”, but that board members “right out of central casting” are unlikely to alter the airline’s fortunes.
During the second quarter, Southwest’s net profit fell 46% year on year to $367 million, with revenue up 5% in one year to $7.5 billion.
