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At 35, Southwest's strategy gets more complicated
By Dan Reed, USA TODAY
DALLAS — When Donald Cloo of Phoenix boarded Southwest Airlines Flight 2444 Monday in San Diego, he did something no passenger had ever done in the 35-year history of the discount carrier. He sat in an assigned seat.
With that, Dallas-based Southwest began an eight-week test with selected flights out of San Diego to see whether assigning seats will speed up the boarding process and allow the carrier to dispatch its planes quicker.
Southwest says it will make no change in its unique open-seating policy before 2008 — and maybe not even then. But Cloo's assignment to seat 19C on the 137-seat Boeing 737 is indicative of something much larger and much riskier than the way in which customers get on a Southwest jet.
On several fronts, the legendary Texas discounter that has rewritten the rules of air travel in the USA is adjusting to its rapid growth. It's already overcome its former aversion to taking on competitors at their own crowded hub airports. And the day may come when the spartan discounter starts to match some of the in-flight amenities available at other airlines — movies, for example.
Its growth is pushing the carrier uncomfortably close to what executives, flight crews and ordinary workers here always have disdained: a typical big airline. The risk: whether Southwest can balance its rapid growth with the folksy, offbeat approach to air travel that has inspired legions of loyal customers.
CEO Gary Kelly, in an interview, acknowledged that, to an old-timer returning from 20 years on a desert island, Southwest's "maverick aspect probably would be less visible." But, he says, that's mostly because the big traditional airlines have become more like Southwest. And despite the changes, Kelly says, "The soul of our company is unchanged."
Since it began flying in 1971, the lack of assigned seating has been the No. 1 customer complaint. Though some die-hards swear by it, most travelers accept it as a trade-off for Southwest's low fares. Now, though, the industry iconoclast is the USA's No. 6 airline. And it's trying to sell tickets in new markets to customers who didn't grow up with its quirky ways.
Other fronts where Southwest seems to be morphing into a more conventional carrier:
•Fares. Southwest, which long promoted itself as "the low-fare carrier," has shown a new willingness to raise them. It's done so nine times since the middle of last year, including a $10 increase on some longer flights over the July Fourth weekend. In the first quarter, its average one-way fare inched above $100 for the first time.
•Competition. For years, Southwest sought to avoid head-to-head competition with big, traditional airlines. But over the past 26 months, it's launched service at rivals' hubs, first at Philadelphia, a US Airways stronghold, then this year at Denver, a hub to both United and Frontier.
•Amenities. Notoriously bare-bones Southwest is considering adding some type of in-flight entertainment technology, Kelly has said.
•Code sharing. It is moving quickly to develop its fledging partnership with ATA Airlines, which it helped rescue from Chapter 11 bankruptcy. Now, Southwest frequent fliers can claim free trips to places the airline itself doesn't go, such as Hawaii and New York City.
•Fleet diversification. Southwest's efficiency is built largely on its all-Boeing 737 fleet. Kelly says that he's "intrigued" by the possibility of flying 100-seat jets in markets with too little demand to support 737 service. He says nothing is currently in the works.
•International flying. In 2008, when the new computer system that permits seat assignments is working, Southwest also will be able to sell tickets in foreign currencies. Kelly says nothing's imminent, but "it's a matter of when, not if" Southwest will launch service to Mexico, Canada, or even the Caribbean.
It's still different
Yet Southwest remains a different kind of airline. There continues to be no first-class seating, no meals and no posh airport VIP clubs.
Still, it is changing. The plucky little start-up that began with four planes flying to three Texas cities is long gone. In its place is a behemoth. By year's end, Southwest will have 478 planes. That's more than United's 460 mainline jets. With orders and purchase options for 284 more 737s, it's on track to pass American, with its 683 mainline jets, in about six years. It would then have the world's largest commercial fleet.
For now, the debate is growing among company veterans, analysts and longtime customers about whether Southwest is changing too much for its own good. Christopher Day, of Valparaiso, Ind., corporate chef at Mercer Cutlery, typifies the problem that fast-growing Southwest faces. A faithful customer for most of the past 12 years, Day says he's learned that he can no longer assume that Southwest will have the best deal. He has flown on other carriers eight of his last 10 trips. "The others were priced better, or at least competitively, with less hassle," Day says.
Lamar Muse, Southwest's blunt-talking, 86-year-old founding CEO, is among those who fret that Southwest is drifting too far away from its successful formula.
Muse says he remains one of Southwest's biggest fans and a frequent buyer of its stock. But he does worry that it is "becoming a legacy carrier just as fast as they know how to." By legacy carrier, Muse is referring to the big airlines that were founded long before deregulation and that, together, have lost more than $42 billion since 2000.
Muse was forced out at Southwest in a famous 1978 boardroom showdown with co-founder Rollin King. Herb Kelleher, the airline's lawyer and third co-founder, stepped in as board chairman, then added the CEO title in 1983.
Kelleher had no aviation experience when he began. But he became an industry legend because of his sometimes outrageous antics and Southwest's resolute adherence to Muse's simple, no-frills formula. But since the early 1990s, Muse says, Southwest has veered from his model. Today, its average passenger flies 796 miles, triple the distance flown in 1973.
That has exposed Southwest and its minimalist brand of service to competition with carriers offering not just low fares but also assigned seats, in-flight entertainment, food, more attractive frequent-flier programs and larger service networks.
Muse says Southwest's fares in those longer, more competitive routes — currently capped at $319 one way — are too low. To compensate, he says, Southwest is now charging too much for short-haul flights. Lower short-haul prices, he says, would generate lots more demand, as they did in the 1970s.
Furthermore, Muse says, the gradual change to a more complicated fare structure resembling those of the legacy carriers undermines consumers' confidence in Southwest's low-fare brand.
Industry consultant Mike Boyd takes a different view. He agrees with Muse that Southwest is surrendering some of its low-fare leadership role. But that's a positive, he says. Demand for short-haul flights has not rebounded from the Sept. 11 terrorism to the extent that longer flights have. That's forcing Southwest to adjust, Boyd says.
Longer routes are "where the revenues are these days," he says.
By Dan Reed, USA TODAY
DALLAS — When Donald Cloo of Phoenix boarded Southwest Airlines Flight 2444 Monday in San Diego, he did something no passenger had ever done in the 35-year history of the discount carrier. He sat in an assigned seat.
With that, Dallas-based Southwest began an eight-week test with selected flights out of San Diego to see whether assigning seats will speed up the boarding process and allow the carrier to dispatch its planes quicker.
Southwest says it will make no change in its unique open-seating policy before 2008 — and maybe not even then. But Cloo's assignment to seat 19C on the 137-seat Boeing 737 is indicative of something much larger and much riskier than the way in which customers get on a Southwest jet.
On several fronts, the legendary Texas discounter that has rewritten the rules of air travel in the USA is adjusting to its rapid growth. It's already overcome its former aversion to taking on competitors at their own crowded hub airports. And the day may come when the spartan discounter starts to match some of the in-flight amenities available at other airlines — movies, for example.
Its growth is pushing the carrier uncomfortably close to what executives, flight crews and ordinary workers here always have disdained: a typical big airline. The risk: whether Southwest can balance its rapid growth with the folksy, offbeat approach to air travel that has inspired legions of loyal customers.
CEO Gary Kelly, in an interview, acknowledged that, to an old-timer returning from 20 years on a desert island, Southwest's "maverick aspect probably would be less visible." But, he says, that's mostly because the big traditional airlines have become more like Southwest. And despite the changes, Kelly says, "The soul of our company is unchanged."
Since it began flying in 1971, the lack of assigned seating has been the No. 1 customer complaint. Though some die-hards swear by it, most travelers accept it as a trade-off for Southwest's low fares. Now, though, the industry iconoclast is the USA's No. 6 airline. And it's trying to sell tickets in new markets to customers who didn't grow up with its quirky ways.
Other fronts where Southwest seems to be morphing into a more conventional carrier:
•Fares. Southwest, which long promoted itself as "the low-fare carrier," has shown a new willingness to raise them. It's done so nine times since the middle of last year, including a $10 increase on some longer flights over the July Fourth weekend. In the first quarter, its average one-way fare inched above $100 for the first time.
•Competition. For years, Southwest sought to avoid head-to-head competition with big, traditional airlines. But over the past 26 months, it's launched service at rivals' hubs, first at Philadelphia, a US Airways stronghold, then this year at Denver, a hub to both United and Frontier.
•Amenities. Notoriously bare-bones Southwest is considering adding some type of in-flight entertainment technology, Kelly has said.
•Code sharing. It is moving quickly to develop its fledging partnership with ATA Airlines, which it helped rescue from Chapter 11 bankruptcy. Now, Southwest frequent fliers can claim free trips to places the airline itself doesn't go, such as Hawaii and New York City.
•Fleet diversification. Southwest's efficiency is built largely on its all-Boeing 737 fleet. Kelly says that he's "intrigued" by the possibility of flying 100-seat jets in markets with too little demand to support 737 service. He says nothing is currently in the works.
•International flying. In 2008, when the new computer system that permits seat assignments is working, Southwest also will be able to sell tickets in foreign currencies. Kelly says nothing's imminent, but "it's a matter of when, not if" Southwest will launch service to Mexico, Canada, or even the Caribbean.
It's still different
Yet Southwest remains a different kind of airline. There continues to be no first-class seating, no meals and no posh airport VIP clubs.
Still, it is changing. The plucky little start-up that began with four planes flying to three Texas cities is long gone. In its place is a behemoth. By year's end, Southwest will have 478 planes. That's more than United's 460 mainline jets. With orders and purchase options for 284 more 737s, it's on track to pass American, with its 683 mainline jets, in about six years. It would then have the world's largest commercial fleet.
For now, the debate is growing among company veterans, analysts and longtime customers about whether Southwest is changing too much for its own good. Christopher Day, of Valparaiso, Ind., corporate chef at Mercer Cutlery, typifies the problem that fast-growing Southwest faces. A faithful customer for most of the past 12 years, Day says he's learned that he can no longer assume that Southwest will have the best deal. He has flown on other carriers eight of his last 10 trips. "The others were priced better, or at least competitively, with less hassle," Day says.
Lamar Muse, Southwest's blunt-talking, 86-year-old founding CEO, is among those who fret that Southwest is drifting too far away from its successful formula.
Muse says he remains one of Southwest's biggest fans and a frequent buyer of its stock. But he does worry that it is "becoming a legacy carrier just as fast as they know how to." By legacy carrier, Muse is referring to the big airlines that were founded long before deregulation and that, together, have lost more than $42 billion since 2000.
Muse was forced out at Southwest in a famous 1978 boardroom showdown with co-founder Rollin King. Herb Kelleher, the airline's lawyer and third co-founder, stepped in as board chairman, then added the CEO title in 1983.
Kelleher had no aviation experience when he began. But he became an industry legend because of his sometimes outrageous antics and Southwest's resolute adherence to Muse's simple, no-frills formula. But since the early 1990s, Muse says, Southwest has veered from his model. Today, its average passenger flies 796 miles, triple the distance flown in 1973.
That has exposed Southwest and its minimalist brand of service to competition with carriers offering not just low fares but also assigned seats, in-flight entertainment, food, more attractive frequent-flier programs and larger service networks.
Muse says Southwest's fares in those longer, more competitive routes — currently capped at $319 one way — are too low. To compensate, he says, Southwest is now charging too much for short-haul flights. Lower short-haul prices, he says, would generate lots more demand, as they did in the 1970s.
Furthermore, Muse says, the gradual change to a more complicated fare structure resembling those of the legacy carriers undermines consumers' confidence in Southwest's low-fare brand.
Industry consultant Mike Boyd takes a different view. He agrees with Muse that Southwest is surrendering some of its low-fare leadership role. But that's a positive, he says. Demand for short-haul flights has not rebounded from the Sept. 11 terrorism to the extent that longer flights have. That's forcing Southwest to adjust, Boyd says.
Longer routes are "where the revenues are these days," he says.
