Southwest's CEO Bob Jordan said the airline is "incredibly well positioned" to adjust to the pressure from rising fuel prices, with new initiatives expected to bring in "billions in revenue tailwind".
Southwest Airlines Co. said it's pushing ahead with a plan to introduce lounges, highlighting how the company is committed to a corporate makeover even as it absorbs higher costs from surging fuel prices.
The effort is a "near term" pursuit, Chief Executive Officer Bob Jordan said, as the carrier moves to court higher-paying travelers and boost revenue.
"You wouldn't be taking steps like leasing space if we weren't near-term active," he said in a Monday interview with Bloomberg News, pointing to its moves to secure space at airports in Honolulu, Nashville and Denver.
The push into lounges marks a significant shift for Southwest, which has long avoided the premium perks embraced by larger rivals. But the airline is leaning into higher-margin offerings as part of a sweeping strategy to improve profitability.
That strategy is being tested by a sharp rise in fuel costs. The Iran war has disrupted global energy markets, raising costs for airlines at a time when demand has otherwise held up. The increase is forcing carriers to weigh how much of the higher expense they can pass on to customers without dampening bookings.
Earlier this month, Delta Air Lines Inc. said it expects more than $2 billion in additional fuel costs through June and is "looking to do more" fare increases to absorb them.
Southwest could follow suit if fuel prices stay higher for longer. Fuel prices have jumped from an expected $2.30 a gallon to about $4.30, representing "billions in cost to the airline," Jordan said.
"We have to adapt. We work in a very competitive industry, so we compete vigorously on price, on product."
Southwest is betting its new initiatives will help, with Jordan saying the airline is "incredibly well positioned" to adjust to the pressure.
"I feel really good about the fact that we have billions in revenue tailwind from all of these new initiatives. It's a great time for that to happen right now with rising fuel prices."
The Dallas-based airline has been reshaping its business model, adding premium seating, introducing bag fees and moving away from its longtime open seating system.
"There's no denying that the level of uncertainty is much higher than normal," Jordan said. "The wide range of outcomes makes it more difficult to forecast, which is certainly going to impact how we think about guiding our earnings for the rest of the year."