Southwest ditches open seating, Delta recovers from outages

Airlines are under pressure after weak second quarter earnings disappointed investors. Boyd Group International President Mike Boyd and Bloomberg Intelligence senior aerospace, defense, and airlines industry analyst George Ferguson join Morning Brief to discuss the outlook for Southwest Airlines (LUV) and Delta Air Lines (DAL) as they navigate recent headwinds and challenges.

Southwest announced it will be phasing out its open seating policy and replacing it with assigned and premium seating instead. Ferguson believes that the move caters to premium demand, explaining that it is a way to "pull in premium passengers, people willing to pay more for where they sit in the cabin or having a blocked middle seat."

He adds that the decision shows that "Southwest is sort of making the evolution to one of those big three carriers that has more premium offerings by slicing and dicing the cabin, charging people more to sit together, to get preferential windows or aisle seats, and to have a premium product. And it's their way to try to stem this revenue slide and look better than the ULCCs [ultra low-cost carriers]."

Meanwhile, Delta is still dealing with the fallout from the CrowdStrike (CRWD) outage that canceled and delayed thousands of flights worldwide last week. Some estimates show that the airline could take a profit hit of as much as $500 million, as it continues to cancel flights. Boyd calls the outage hitting Delta "a real surprise because they're probably one of the most advanced out there in terms of tracking every single metric." He adds that Delta Air Lines CEO Ed Bastian "isn't going to let this happen again."

The US Department of Transportation has since opened up an investigation into Delta's delays in connection to the worldwide IT disruptions.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video Transcript

George, what do you make of Southwest kind of pivot here getting rid of their free for all uh boarding process where now we can have assigned seats.

Um Do you think that's in line with some of the discussion that we're just having or is that just uh something that was in uh inevitable?

I think it's totally in line with the discussion we're having.

So I think this is part of how, you know, some of the larger carriers are going to try to fix things, right?

So we know premium demand is better.

I mean, frankly what, you know, when I fly, I don't fly basic economy, but I fly premium.

And when I look at the premium seat, premium economy seat, it reminds me a heck of a lot like what economy was prior to the pandemic and the rack by a lot of airlines that kind of went to this big, you know, heavy density model like Spirit and Frontier.

And so I think, you know, this is Southwest uh even frontier are all looking for ways to pull in premium passengers.

People who are willing to pay more for, you know, where they sit in the cabin or having a blocked middle seat.

So to me, Southwest is sort of making the evolution to, you know, one of those, one of those big three carriers that has more premium offerings by slicing and dicing the cabin, charging people more to, you know, sit together to get preferential windows or aisle seats and to have a premium product.

And it's their way to try to stem this revenue slide and look better than the U CS.

Let's talk about what's going on with Delta specifically because it's still facing issues here from the crowd.

Strike outage last Friday.

They've canceled thousands of flights over the last several days.

There's been estimates out there that they could actually take a profit hit of as much as $500 million due to some of this uh turmoil here.

My question to you is one how big of an overhang do you see this being for the stock and to an issue like this?

How big of a hit could Delta or is Delta ultimately going to take care to its reputation?

Yeah.

Yeah.

Uh Look the the this is a real surprise because Delta in terms of it, they know what, what the average size of underwear are for their passengers.

This is a real surprise that this breakdown happened.

I think it was just simply a lucky hit um that this this cloud flare or whatever they called it uh hit them.

I think they they're gonna recover from that.

But I think the, the good news is they're gonna fix it, but they aren't like Southwest running around with back backward systems.

This is a real surprise because they're probably one of the most advanced out there in terms of tracking every single metric.

So I'm, I'm, I'm confident that Mr Bastian isn't gonna let this happen again.