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“Ladies and gentlemen, we request that you stay in the aircraft at all times!” Deliberately corny jokes from the pilots and flight attendants are standard on Southwest Airlines — and there's indeed something to laugh about.
United Airlines lost a staggering $2.1 billion in 2001. Delta dropped $1.2 billion. American Airlines, the nation's largest carrier, was $1.8 billion in red ink. In fact, every major U.S. airline tanked last year except one: Southwest.
The Dallas-based discount carrier posted a $511 million profit despite the downturn in the economy and the devastating financial repercussions of the Sept. 11 terrorist attacks. It was Southwest's 29th profitable year in a row — a track record unmatched by any other carrier. And while other airlines slashed their flight schedules and furloughed tens of thousands of employees after Sept. 11, Southwest kept its planes in the air and its workers on the payroll. Now, with passenger traffic and revenues still down, many experts say the “Southwest business model” may be the only way for the cash-strapped airline industry to survive.
“Southwest's model has made money in boom times and bust, through war and peace,” writes Joe Brancatelli, editor of JoeSentMe.com, a business travelers' Web site. “Going forward, who would invest in any airline that doesn't resemble Southwest?”
Indeed, many mainline carriers have launched subsidiaries based on Southwest's low-cost, no-frills model. Delta, for example, introduced Delta Express in 1996 to counter Southwest's growing market share in Florida. Air Canada, which lost $1.2 billion in 2001, this summer will launch its second low-fare subsidiary.
“We're kidding ourselves if we don't look at the [Southwest] model and, frankly, mimic it,” said Air Canada President Robert Milton. “There's absolutely no doubt at this stage that just shoving a mainline product at people is no longer what they want.”
About a dozen low-cost carriers operate in the United States. Some, like Delta Express, are operated by mainline carriers. Others, like JetBlue, are independent operations. While some have turned a profit in recent years, none has approached Southwest's success.
Southwest keeps costs down and profits up by serving plenty of peanuts — but no meals or movies. (Southwest Airlines)
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Southwest spearheaded the low-fare revolution in 1971, when it began offering flights between three Texas cities. Today, it is the nation's fourth-largest airline (in domestic customers carried), with some 2,800 daily flights between 58 cities in 30 states. Southwest alone provides 90 percent of all discount air travel in America — a remarkable accomplishment in the highly competitive airline industry.
“Southwest has trounced its competition in every possible financial metric — growth, profitability, financial health and shareholder returns,” said Pat Dorsey, director of stock analysis for Morningstar Inc., an investment advisory firm.
The reasons for Southwest's success are clear. The company focuses on short-haul flights with an average (one-way) trip length of 360 miles. That keeps Southwest's average one-way airfare at $83.99, making the company competitive not only against other airlines but also ground transportation. In the 1970s, Southwest charged as little as $13 for its Houston-Dallas route. When the airline launched service within Florida in 1996, fares were as low as $29.
Southwest keeps its costs down by not offering movies and meals. (But it doesn't scrimp on the peanuts — it handed out 91.7 million bags in 2001). In addition, the company uses a single type of aircraft — the Boeing 737 — to keep maintenance costs at a minimum. It further reduces operating expenses by using less-congested satellite airports, such as Love Field in Dallas and Midway Airport in Chicago. This makes for fewer gate delays and shorter taxi ground times, thus enabling the company to get more productivity out of its employees and airplanes.
Southwest's way of doing business is popular with the flying public. Passengers seem to enjoy the pilots' and flight attendants' casual attire and carefully scripted corny jokes — and even the occasional sing-alongs. The company has logged the lowest complaint rate of all major airlines for the last 11 consecutive years, according to the Department of Transportation.
“I don't want to say that everything is perfect with Southwest and the other low-cost carriers,” says John Rodgers, director of the Federal Aviation Administration's Office of Policy and Plans. “But they have certainly fared better than the industry as a whole.”
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