The Strategic Transformation of Southwest Airlines amid External Shocks

Southwest Airlines maintained 47 consecutive years of profitability through a cost-leadership strategy built on free checked baggage and open seating. However, in 2025, the airline abandoned these policies, marking a strategic shift. Existing literature extensively documents Southwest's historical success but offers limited analysis of how external shocks reshape its resource-based competitive advantages during strategic transitions. This paper examines Southwest's transition from a pure cost-leadership model toward a hybrid competitive strategy. Using the Resource-Based View and VRIO framework as the primary analytical tools and PESTEL analysis as a supplementary tool for external environmental analysis, the study evaluates how core resources evolved before and after the policy changes. The analysis yields three main findings. First, the free baggage policy constituted a sustained competitive advantage before its elimination. Second, the shift to assigned seating increased boarding time by 4–6 minutes, weakening the airline's rapid-turnaround efficiency. Third, Southwest is neither the cheapest option nor the most premium one, and loyal customers have expressed dissatisfaction with the new fees. Drawing on these findings, four recommendations are offered: mitigate positioning risk, rebuild trust with frequent passengers, restore operational efficiency, and reduce supply chain risks.