The airline will also repackage its holiday package sales. It will seek partnerships with international airlines, starting with Icelandair next year, which executives say will make Southwest’s credit cards and frequent flyer program more attractive.

The changes will be the biggest ever at Southwest, the original low-cost carrier, which is now well into middle age and suffering from deteriorating financial results.

Southwest executives pitched the new offering as they come under increasing pressure from an activist investor who wants to replace the airline’s management and force an overhaul of its strategy. Southwest’s annual profit is about to decline for the third year in a row, and its stock price has fallen by more than half since the start of 2021.

“Our model is not broken,” CEO Robert Jordan stated, but he said it needs to be adjusted and “improved.”

“We are not producing the financial results that we are capable of,” he said during a meeting with investors at the airline’s headquarters in Dallas.

Southwest said the multi-year plan, including changes to its flight network, will generate about $1.5 billion in pretax profits by 2027.

Southwest had previously announced the outlines of the changes, including assigned seating and seats with extra legroom, but provided more details on Thursday.

Executives explained how each of Southwest’s four airline tickets will come with benefits that improve as the price increases. Executive Vice President Ryan Green said the cheapest fares would leave customers without a seat choice when booking a flight, which could increase the incentive for consumers to move up to the next fare level.

Jordan said it will take time to make significant changes at an airline with 800 planes.

Southwest’s reservation system can handle assigned seating, Jordan said, but “we have dozens and dozens of other corporate systems that are geared for open seating … and those need to be changed.”

“There is a lot of risk if you do this poorly,” said the CEO.

Southwest stopped short of changing one of its old features: letting passengers check in up to two bags for free, a break from the fees charged by all other leading U.S. airlines. Executives said this is the key feature that sets Southwest apart from rivals.

U.S. airlines raked in more than $7 billion in revenue from baggage fees last year, while American and United each raked in more than $1 billion. Wall Street has long argued that Southwest is leaving money behind.

Southwest, which for years has built advertising campaigns around free bag flying, estimated that baggage fees would generate about $1.5 billion a year, but eliminating the benefit could drive passengers away, costing the airline $1.8 billion , or a net loss of $300 million. one year.

Southwest had been considering an overhaul for months, but the push for radical change became even more important for management this summer, when Elliott Investment Management took the company to task for its weak financial performance in recent years.

The hedge fund blames Southwest leaders, portraying them as narrow-minded and insensitive to changing consumer tastes. Elliott, controlled by billionaire financier Paul Singer, wants to replace Jordan and most of Southwest’s board.

The hedge fund dismissed Southwest’s turnaround plan as too little, too late.

“Another promise of a better future from the same people who created the problems we face today,” two Elliott officials said in a statement. “Without credible leadership to implement, this plan – filled with longstanding promises of improved performance – risks becoming the latest in Southwest’s long line of failed improvement initiatives.”

Elliott, the airline’s second-largest shareholder, said it plans to call a shareholder meeting next week, which could also include a vote on Southwest’s directors. Elliott has 10 board candidates, including former airline CEOs.

Southwest gave ground this month when it announced that six directors will leave in November and that Chairman Gary Kelly will step down next year. On Thursday, it appointed a former CEO of AirTran and Spirit Airlines to the board, which now has 16 members.

Jordan argued that the plan he has laid out should satisfy investors.

“We do not believe a proxy fight is in the best interests of the company, and we remain willing to work with Elliott on a cooperative approach,” Jordan said.

Before the event started Thursday, Southwest announced a $2.5 billion stock buyback program aimed at making existing shares more valuable.

Southwest also said third-quarter revenue will be better than expected, in part because it has attracted passengers stranded by other airlines during CrowdStrike’s global technology outage in July. Delta Air Lines in particular was hit hard by the outage.

Shares of Southwest Airlines Co. rose by more than 5%.