Flying the Line
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Kelly: Southwest Airlines must respond to compete against leaner, meaner competitors (and he means the bankrupt big boys)
By Terry Maxon/Reporter
[email protected] | Bio
11:54 AM on Mon., Dec. 5, 2011 | Permalink
Southwest Airlines chairman and chief executive officer Gary Kelly offered some surprising observations Monday about his three biggest competitors:
• The old, legacy carriers, Delta Air Lines and United Airlines, don't exist anymore. They've been replaced by better versions with lower costs.
• American Airlines won't survive if it doesn't convert itself as they did.
• Southwest has to find a way to overcome the lower costs of its competitors.
In a letter to employees and in a separate hotline, Kelly said Southwest will have to fight to keep its competitive spot against major competitors who have transformed themselves, like United or Delta, or will transform themselves, as American must do.
In the letter he said:
"American isn't the only airline not to survive without bankruptcy. Let's look back to 1989, the year Southwest became the newest member of the old major airline club, based on annual revenues.
"All the majors from 1989 have gone bankrupt. Pan Am. Eastern. Braniff. Continental. America West. TWA. US Air. United. Delta. Northwest. And now, American. Every single one failed.
"Why? Not because of Customer Service, but because of high costs. Great Customer Service cannot overcome high costs. That is the imperative I wrote about a decade ago: low costs."
On the hotline, he added about American Airlines:
"I am sure they will shrink. I am sure they will be forced to reduce their costs or else they will be shut down and liquidated. It'll be long. It'll be painful for them. Along the way, they lost their way. As the world changed over the last decade, they were simply not able to adjust and especially with their labor contracts."
"In the near term, they'll be very distracted. That may be somewhat good for us. It may be very good for us in some markets.
"But I can assure you, over the longer term, we're going to face a more formidable opponent, just like we now face with United, who is performing the best they have in 20 years, and also Delta, also performing very well and in some ways better than Southwest Airlines."
Southwest has to "get our costs down through increased productivity to compete against these new legacy airlines," Kelly said on the hotline.
"Their costs are much lower than they were. Their labor costs are lower than ours. Actually, they aren't what you would call legacy airlines. They are new. They are different. The old legacy airlines are dead and buried," he said.
By Terry Maxon/Reporter
[email protected] | Bio
11:54 AM on Mon., Dec. 5, 2011 | Permalink
Southwest Airlines chairman and chief executive officer Gary Kelly offered some surprising observations Monday about his three biggest competitors:
• The old, legacy carriers, Delta Air Lines and United Airlines, don't exist anymore. They've been replaced by better versions with lower costs.
• American Airlines won't survive if it doesn't convert itself as they did.
• Southwest has to find a way to overcome the lower costs of its competitors.
In a letter to employees and in a separate hotline, Kelly said Southwest will have to fight to keep its competitive spot against major competitors who have transformed themselves, like United or Delta, or will transform themselves, as American must do.
In the letter he said:
"American isn't the only airline not to survive without bankruptcy. Let's look back to 1989, the year Southwest became the newest member of the old major airline club, based on annual revenues.
"All the majors from 1989 have gone bankrupt. Pan Am. Eastern. Braniff. Continental. America West. TWA. US Air. United. Delta. Northwest. And now, American. Every single one failed.
"Why? Not because of Customer Service, but because of high costs. Great Customer Service cannot overcome high costs. That is the imperative I wrote about a decade ago: low costs."
On the hotline, he added about American Airlines:
"I am sure they will shrink. I am sure they will be forced to reduce their costs or else they will be shut down and liquidated. It'll be long. It'll be painful for them. Along the way, they lost their way. As the world changed over the last decade, they were simply not able to adjust and especially with their labor contracts."
"In the near term, they'll be very distracted. That may be somewhat good for us. It may be very good for us in some markets.
"But I can assure you, over the longer term, we're going to face a more formidable opponent, just like we now face with United, who is performing the best they have in 20 years, and also Delta, also performing very well and in some ways better than Southwest Airlines."
Southwest has to "get our costs down through increased productivity to compete against these new legacy airlines," Kelly said on the hotline.
"Their costs are much lower than they were. Their labor costs are lower than ours. Actually, they aren't what you would call legacy airlines. They are new. They are different. The old legacy airlines are dead and buried," he said.
