Air Transport World

The king of the hill evolves: Southwest Airlines has made nary a false step in its first three decades, but growth, financial success and Sept. 11 have combined to present new challenges. (Profile).

After 31 years and several economic downturns, Southwest Airlines continues to validate its founding philosophy: Maintaining permanently low costs as the basis for permanently low fares is the only way to run a permanently profitable airline. Even fervent hub-and-spoke advocates must bow before this most evident truth. In the corporate world of South-westland, its Freedom to Fly motto ranks right up there with "life, liberty and the pursuit of happiness."

Now, after more than three decades of success, some of the apparently immutable practices of this most successful airline have, in fact, begun to evolve, some as a consequence of size and some as a result of the unbroken string of profitable years. For the first time since immediately after its founding, Southwest is facing basic changes to its operational style. No longer a "niche airline"--as it was regarded by larger competitors unable to grasp the potential of its low-fare/low-cost approach--Southwest ranked No. 4 among US Majors last year in terms of passenger enplanements. Based on current growth trends it will become No. 3 by 2005.

Its unions have noticed. The airline with the best labor relations in the industry faces a potentially different environment going forward as employees grumble about better pay from the industry's most profitable carrier.

Low costs are still a religion at Southwest. To make the point, Vice Chairman and CEO Jim Parker pulls a hotel pen from his shirt pocket. Why waste company money on something he can get for free? Other basics also remain unchanged: Use the least congested airports in regions with high population densities, employ a single airplane type, put employees first because they are the ones responsible for customer service, and keep top management stable and promote from within.

But Southwest is nothing if not flexible. It unhesitatingly makes tactical changes without disrupting its image--at least, not so far. For example, the early two-tier fare structure is long gone, replaced by several fare products. But the range is quite narrow. The highest fare on any route is $399 one way, with deep-discount fares sometimes the equivalent of weekend pocket money. Senior VP-Marketing Joyce Rogge suggests, "We want fares at a level where people are comfortable traveling tomorrow or next week."

As a result, Southwest sells a far higher percentage of full-fare seats than any other US carrier. Observers say travelers often can find lower fares on other airlines but not consistently and not nationwide. As the only nationwide low-fare carrier, Southwest has made sure its fares are regarded as the ones to beat. Only time will tell if newer low-cost airlines will have the staying power to challenge that position.

While still profitable, Southwest has taken a hit from the downturn. …

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