Air Transport World

Southwest luvs passengers, employees, profits. (Southwest Airlines Co.) (company profile)

DALLAS-Southwest Airlines shareholders probably wondered what the big deal was when they received last year's annual report with its simple 6-word, white-on-black cover message: In 1990, we made a profit." After all, stockholders of the airline that celebrated "20 years of loving you" on June 18, are accustomed to profits. Southwest's unbroken profitability string began in 1973, its second full year of operation, and its $4.6 million 1990 fourth-quarter net loss was only the second in 71 quarters. The first, in the 1987 first quarter, was attributable to its ill-fated 1985 acquisition of Muse Air, which became TranStar and by the end of 1987, had ceased operation and been liquidated.

But as charismatic Chairman/President/CEO Herb Kelleher proclaimed proudly inside the annual report, a profit was an uncommon accomplishment for an airline" in a year of gathering recession, Iraq's invasion of Kuwait and surging fuel prices. Only two U.S. major carriers posted 1990 operating profits-Southwest with $81.9 million and American with $68 million. Only two recorded net profits-United with $95.8 million and Southwest with $47.1 million. Only Southwest was in the black in both the operating and net-income columns.

And, noted Kelleher, Southwest would have enjoyed a third consecutive year of record net earnings, had it not been socked with an extra $57 million in fuel costs. Despite the 28.9% jump in its fuel bill, total cost per available seat mile climbed only 8.5% and at 6.73cts, it remained one of the lowest numbers in the industry. Meanwhile, revenues rose i6.9% to $1.19 billion, revenue per passenger-mile was up 9.5% to 11.49cts, revenue per ASM increased 5.4% to 7.23cts and Southwest went into 1991 with some 100 million in cash and a $215 million revolving credit line. And as it has done for 58 consecutive quarters-and as few other airlines do-it paid its shareholders a dividend.

Demand for Southwest's unique brand of service did not falter in the face of a souring economy, either. Passenger boardings grew 10.4% to 19.8 million to rank "the state bird of Texas" No. 14 in the world in that category last year and were up an additional 18.2% in this year's first quarter. And although the first quarter produced a further net loss, of $8.2 million, March was profitable and Kelleher is confident of profits for the rest of the year.

How does Southwest do it? A lot of ingredients go into piling up profits at fares that have averaged $55 for the past five years but VP-Marketing Don Valentine probably pinpoints the secret when he says: We just keep on keeping on and that's the toughest thing any business ever does, staving true to your niche or strategy." Kelleher agrees: "There has been pressure on us over the years to make the mistakes others did," he commented to ATW. "But I think our wisdom was deciding that we had something very special that we did very well and that we didn't have to ape everybody else. Most of the carriers that did try to play on other people's turf are gone."

What Southwest has been doing very well for 20 years, in Kelleher's words, is "offering a very good product at a very reasonable price." As it has grown from three airplanes serving three Texas cities into a major carrier flying 1,100 daily departures with 110 Boeing 737s from 34 airports in 14 states, it has remained a low-fare, high-frequency, short-haul, point-to-point, single-class, noninterlining, and-perhaps most importantly--fun-loving airline. When it expands, as it has been doing in California recently, "we just take out the cookie cutter and do the same old thing at a new airport," Kelleher says.

Along the way, it has carefully nurtured a distinctive personality that sometimes startles passengers unfamiliar with its nonconformist brand of service-but that earns it consistently high rankings in the U.S. DOT's measurements of consumer satisfaction. Although it no longer is the airline of hot pants and peanuts labeled "love bites," three of its airplanes are painted to resemble killer whales and one is a Texas flag, its irrepressible chairman is apt to wander through the terminal dressed as Elvis Presley or a leprechaun, its ground and in-flight personnel and executives often are decked out in casual fun wear" or in costumes keyed to the many holidays that it celebrates. …

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