Stock Markets
Analysis-Southwest Airlines to end its brand-defining open-seating policy. Will it work?
By Rajesh Kumar Singh
CHICAGO (Reuters) – Southwest Airlines (NYSE:)’ plan to eliminate open seating is one way for the company to raise much-needed revenue, but it comes with the risk of alienating loyal customers.
The unusual practice of letting passengers choose their own seats once they board the plane was created by Southwest’s egalitarian-minded founder, Herb Kelleher, and has been central to the airline’s brand image for more than 50 years.
But the feature is about to end, torpedoed by disappointing earnings and share performance since the pandemic and pressure from activist investor Elliott Management. The Dallas-based airline last week announced it would pivot to assigned seating instead. It plans to share more details at its investor day in September.
The company also plans to offer seats with extra legroom – yet another departure from Kelleher, who disliked dividing airline seating into different classes of service. Southwest said the new cabin layout will require approvals from the U.S. Federal Aviation Administration and is expected to be available for bookings in 2025.
The lack of assigned and extra-legroom seating has been one of the biggest obstacles to Southwest’s ability to attract premium travelers, said Henry Harteveldt, founder of travel consultancy Atmosphere Research Group.
“As a business, you always want to give your customers a reason to pay you more,” he said.
Investors and analysts say the company had little choice but to evolve. Shares have lost nearly half their value in the last three years, during a time when the has gained 25%. The company’s trailing price-to-earnings ratio is above 33, far exceeding the industry median of 4.86, and just two analysts of 18 have a “buy” rating on the stock, according to LSEG data.
Southwest needs new high-margin revenue streams to offset cost pressures and boost profit. Its operating margin declined to 0.2% in the first half of this year from more than 13% in 2019.
Analysts at Raymond James expect the changes to contribute 95 cents a share to the airline’s earnings next year. Rivals such as Delta, United and Alaska Airlines have been relying on big-spending premium travelers to protect their profits.
Last week, Southwest CEO Bob Jordan called the change a “strategic transformation” that could generate more than $1 billion in annual revenue and broaden the airline’s appeal.
Analysts say Southwest’s success hinges upon its ability to market and sell the changes and break in to a market it has never served before.
“Expectations should be tempered that assigned seating is a lightswitch change for Southwest,” said Conor Cunningham, an analyst at Melius Research.
Elliott Investment Management did not see it that way either, dubbing the changes “too little, too late,” reiterating its demand for new leadership. The firm is trying to oust CEO Jordan and board chair Gary Kelly, saying the company needs fresh perspectives.
Last Thursday, Jordan said while the company wanted to hear Elliott’s feedback, the activist investor had not shown willingness to engage in any meaningful conversations.
Southwest considered abandoning open seating and switching to assigned seating in 2006 but dropped the idea after tests showed the move might hurt its efficiency and increase boarding time by 1 to 4 minutes. The switch could also drive up labor costs as Southwest could need more agents for boarding.
How customers will respond is unclear. Jordan said the company surveyed tens of thousands of customers, with many citing its open seating policy as the No. 1 reason for deciding to stop flying with Southwest and choose a rival.
Some travelers wondered if the company would also do away with its policy of no fees for bags. Jordan has said the company has no plans to start charging for bags, adding that the airline’s data shows that a no-bag-fee policy is the No. 1 reason customers choose to fly Southwest.
To some customers, though, the end of open seating is a major blow to the airline’s uniqueness.
“Southwest, I fear you are losing your differentiation with this choice,” Robb Winger, who called himself a Southwest “loyalist,” wrote on LinkedIn.
Stock Markets
Palantir, Anduril join forces with tech groups to bid for Pentagon contracts, FT reports
(Reuters) – Data analytics firm Palantir Technologies (NASDAQ:) and defense tech company Anduril Industries are in talks with about a dozen competitors to form a consortium that will jointly bid for U.S. government work, the Financial Times reported on Sunday.
The consortium, which could announce agreements with other tech groups as early as January, is expected to include SpaceX, OpenAI, autonomous shipbuilder Saronic and artificial intelligence data group Scale AI, the newspaper said, citing several people with knowledge of the matter.
“We are working together to provide a new generation of defence contractors,” a person involved in developing the group told the newspaper.
The consortium will bring together the heft of some of Silicon Valley’s most valuable companies and will leverage their products to provide a more efficient way of supplying the U.S. government with cutting-edge defence and weapons capabilities, the newspaper added.
Palantir, Anduril, OpenAI, Scale AI and Saronic did not immediately respond to a Reuters request for comment. SpaceX could not be immediately reached for a comment.
Reuters reported earlier this month that President-elect Donald Trump’s planned U.S. government efficiency drive involving Elon Musk could lead to more joint projects between big defense contractors and smaller tech firms in areas such as artificial intelligence, drones and uncrewed submarines.
Musk, who was named as a co-leader of a government efficiency initiative in the incoming government, has indicated that Pentagon spending and priorities will be a target of the efficiency push, spreading anxiety at defense heavyweights such as Boeing (NYSE:) , Northrop Grumman (NYSE:) , Lockheed Martin (NYSE:) and General Dynamics (NYSE:) .
Musk and many small defense tech firms have been aligned in criticizing legacy defense programs like Lockheed Martin’s F-35 fighter jet while calling for mass production of cheaper AI-powered drones, missiles and submarines.
Such views have given major defense contractors more incentive to partner with emerging defense technology players in these areas.
Stock Markets
Weakened Iran could pursue nuclear weapon, White House’s Sullivan says
By Simon Lewis (JO:)
(Reuters) -The Biden administration is concerned that a weakened Iran could build a nuclear weapon, White House National Security Adviser Jake Sullivan said on Sunday, adding that he was briefing President-elect Donald Trump’s team on the risk.
Iran has suffered setbacks to its regional influence after Israel’s assaults on its allies, Palestinian Hamas and Lebanon’s Hezbollah, followed by the fall of Iran-aligned Syrian President Bashar al-Assad.
Israeli strikes on Iranian facilities, including missile factories and air defenses, have reduced Tehran’s conventional military capabilities, Sullivan told CNN.
“It’s no wonder there are voices (in Iran) saying, ‘Hey, maybe we need to go for a nuclear weapon right now … Maybe we have to revisit our nuclear doctrine’,” Sullivan said.
Iran says its nuclear program is peaceful, but it has expanded uranium enrichment since Trump, in his 2017-2021 presidential term, pulled out of a deal between Tehran and world powers that put restrictions on Iran’s nuclear activity in exchange for sanctions relief.
Sullivan said that there was a risk that Iran might abandon its promise not to build nuclear weapons.
“It’s a risk we are trying to be vigilant about now. It’s a risk that I’m personally briefing the incoming team on,” Sullivan said, adding that he had also consulted with U.S. ally Israel.
Trump, who takes office on Jan. 20, could return to his hardline Iran policy by stepping up sanctions on Iran’s oil industry.
Sullivan said Trump would have an opportunity to pursue diplomacy with Tehran, given Iran’s “weakened state.”
“Maybe he can come around this time, with the situation Iran finds itself in, and actually deliver a nuclear deal that curbs Iran’s nuclear ambitions for the long term,” he said.
Stock Markets
Ukraine says Russian general deliberately targeted Reuters staff in August missile strike
(Reuters) -Ukraine’s security service has named a Russian general it suspects of ordering a missile strike on a hotel in eastern Ukraine in August and said he acted “with the motive of deliberately killing employees of” Reuters.
The Security Service of Ukraine (SBU) said in a statement on Friday that Colonel General Alexei Kim, a deputy chief of Russia’s General Staff, approved the strike that killed Reuters safety adviser Ryan Evans and wounded two of the agency’s journalists on Aug. 24.
In a statement posted on Telegram messenger the SBU said it was notifying Kim in absentia that he was an official suspect in its investigation into the strike on the Sapphire Hotel in Kramatorsk, a step in Ukrainian criminal proceedings that can later lead to charges.
In a separate, 15-page notice of suspicion, in which the SBU set out findings from its investigation, the agency said that the decision to fire the missile was made “with the motive of deliberately killing employees of the international news agency Reuters who were engaged in journalistic activities in Ukraine”.
The document, which was published on the website of the General Prosecutor’s Office on Friday, said that Kim had received intelligence that Reuters staff were staying in Kramatorsk. It added that Kim would have been “fully aware that the individuals were civilians and not participating in the armed conflict”.
The Russian defence ministry did not respond to a request for comment on the SBU’s findings and has not replied to previous questions about the attack. The Kremlin also did not respond to a request for comment. Kim did not reply to messages sent by Reuters to his mobile telephone seeking comment about the SBU’s statement and whether the strike deliberately targeted Reuters staff.
The SBU did not provide evidence to support its claims, nor say why Russia targeted Reuters. In response to questions from the news agency, the security agency declined to provide further details, saying its criminal investigation was still under way and it was therefore not able to disclose such information.
Reuters has not independently confirmed any of the SBU’s claims.
Reuters said on Friday: “We note the news today from the Ukrainian security services regarding the missile attack on August 24, 2024, on the Sapphire Hotel in Kramatorsk, a civilian target more than 20 km from Russian-occupied territory.”
“The strike had devastating consequences, killing our safety adviser, Ryan Evans, and injuring members of our editorial team. We continue to seek more information about the attack. It is critically important for journalists to be able to report freely and safely,” the statement said.
Reuters declined to comment further on the allegation that its staff were deliberately targeted.
The SBU statement said Kim had been named a suspect under two articles of the Ukrainian criminal code: waging an aggressive war and violating the laws and customs of war.
“It was Kim who signed the directive and gave the combat order to fire on the hotel, where only civilians were staying,” it said.
Evans, a 38-year-old former British soldier who had worked as a safety adviser for Reuters since 2022, was killed instantly in the strike.
The SBU statement gave some details about how the strike had occurred, according to its investigation.
“To carry out the attack, the Russian colonel general involved one of his subordinate missile forces units,” the Ukrainian agency said, adding that the strike was carried out with an Iskander-M ballistic missile.
The SBU did not identify the specific unit.
Ivan Lyubysh-Kirdey, a videographer for the news agency who was in a room across the corridor, was seriously wounded. Kyiv-based text correspondent Dan Peleschuk was also injured.
The remaining three members of the Reuters team escaped with minor cuts and scratches.
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