Southwest Airlines ditching open seating

Dallas-based Southwest Airlines is adopting assigned seating and will offer some premium seating with extra legroom in a fundamental change to how the company does business.

Why it matters: Southwest has had an open seating policy for its 50-year history, with passengers boarding in a certain order and choosing any available seat on the plane.

• Premium seating has not been part of its revenue stream until now.

Driving the news: Southwest will also start offering redeye flights in five initial nonstop markets: Las Vegas to Baltimore and Orlando; Los Angeles to Baltimore and Nashville; and Phoenix to Baltimore.

• The company reported yesterday $367 million in profits in the second quarter, about on par with projections.

The big picture: The changes come after an activist investor called for an overhaul of the airline's board and operations.

• The airline also experienced a series of potentially dangerous incidents this year.

Flashback: Southwest's boarding process started as a way to quickly load and unload passengers. It kept the airline efficient and allowed the carrier to run more flights, per AP.

• But, Southwest CEO Bob Jordan told CNBC open-seating was the primary reason passengers reported switching airlines.
• The airline said it found that 80% of its customers and 86% of potential customers prefer assigned seating.

What they're saying: The Southwest CEO expects a small number of customers will say they want to stick with open seating.

• "But we had the same thing when we switched from plastic boarding passes. We had the same thing when we took peanuts out of the cabin. I'm convinced we can win them over," Jordan told CNBC.

What's next: The redeye flights are on sale but won't take off until next Valentine's Day. And the boarding process likely won't go into effect until next year.

• Plus, Southwest will still offer free checked bags.