SirFlyALot
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Southwest changing ways under new chief executive
By LOREN STEFFY
Copyright 2004 Houston Chronicle
The Gene Simmons get-up should have been the tip-off.
When Gary Kelly, the new chief executive of Southwest Airlines, dressed up as the Kiss frontman for Halloween, we should have known it was more than a prank. It was a sign that change was afoot.
For those not familiar with '70s glam rock, Simmons wears black and white face paint and is known for bloodying himself, breathing fire and performing various antics with his tongue, which is roughly the length of a garter snake.
Company founder Herb Kelleher preferred Elvis impersonations. But Southwest isn't Kelleher's airline anymore. Just four months after taking over, Kelly has changed the tone.
First, he ended the company's 25-year ride on the fence over the Wright Amendment, the federal restriction that limits the distance of passenger flights from Southwest's home base at Dallas Love Field. The move puts the airline in the center of what has been a long-running political firestorm.
Then, last week, Kelly offered $100 million to buy some of the assets of bankrupt ATA Airlines, a deal that may spark industry consolidation among low-fare carriers.
The moves signify more than Kelly's coming out as a CEO. They are the result of a fundamental shift in the airline industry. Southwest, by some counts, carries more passengers than any other U.S. airline, and low-fare carriers are the only ones making money. They are no longer content with second-tier status in the industry.
Southwest and other profitable upstarts like AirTran and JetBlue are beginning to define the next phase of airline deregulation.
But it's unclear if Southwest will embrace the old rules or rewrite them, now that it has the power.
Kelly's decision to end his company's 25-year silence on the Wright Amendment clearly reflects the industry's new competitive spirit. The law was an attempt by big carriers to stifle a fledgling Southwest. Instead, it became a protective environment that kept the predators at bay.
'Passionately neutral'
So for decades Southwest said it was "passionately neutral" about the Wright Amendment, refusing to join in any attempts to lift it.
But it doesn't need the law any more. It needs to expand, and the Wright Amendment is getting in the way. Kelly decided it's time to take sides.
Recognizing his airline's clout, he's vowed to boost Southwest's lobbying efforts if necessary. If he succeeds, score one for competition.
Then there's the ATA deal, which is a little more suspect. For $100 million, Southwest would buy six of the 14 gates that ATA controls at Chicago's Midway Airport, as well as a maintenance base.
In fact, according to the Indianapolis Star, Southwest has offered to take nearly complete control of Indiana-based ATA, injecting $47 million in cash, taking a 35 percent stake in the airline and naming new senior executives who would work to cut labor costs 15 percent to 20 percent.
Southwest also would create a code-sharing agreement for about nine cities. Code-sharing, you may recall, is where you think you're buying a ticket on one airline and find out you're flying on another.
Legacy-carrier feel
Southwest has avoided code-sharing — its only previous deal was with Icelandair — because its customers are fiercely loyal and its flying style is unique.
It's a cheap way that cash-strapped big airlines expand, a form of virtual capital investment. Southwest has never expanded on the cheap. If it thought the code-share markets were viable, it would fly there itself.
Code-sharing gives the ATA deal a legacy-carrier feel, and it's disheartening to see the industry's new lead dog resort to old tricks.
Southwest says its bid is good for competition because it helps ATA keep flying, which is disingenuous. Airlines don't want to see other airlines keep flying. Fewer airlines means more passengers for those who remain.
No remorse
Southwest, after all, showed no remorse for US Airways as that carrier headed for bankruptcy. Instead, it moved into Philadelphia, a major US Airways hub, and stepped up flights as the other carrier faded away.
The real issue behind Southwest's bid is expansion at Midway, which, like Love Field, is a crucial market where it feels restricted. With ATA's six gates, Southwest would control more than half the airport.
The deal also blocks a major competitor, AirTran, from expanding. AirTran made a $90 million bid for all of ATA's gates, as well as some assets in other cities.
Wait for winner
A bankruptcy judge will review both offers and announce a winner by week's end. If AirTran wins, South-
west will be stuck with its current 19 Midway gates, while AirTran expands from two to 16 — more competition at Midway, just not necessarily the kind Southwest would prefer.
AirTran executives already have denounced Southwest's bid as anticompetitive.
Under Kelly, though, Southwest isn't shying from controversy. The battle for airline dominance has shifted, and Southwest is now setting the tone for the next round of competitive battles.
We should have seen it coming back in October.
Elvis has left the building. The future of the airline industry was ushered in with black and white face paint.
By LOREN STEFFY
Copyright 2004 Houston Chronicle
The Gene Simmons get-up should have been the tip-off.
When Gary Kelly, the new chief executive of Southwest Airlines, dressed up as the Kiss frontman for Halloween, we should have known it was more than a prank. It was a sign that change was afoot.
For those not familiar with '70s glam rock, Simmons wears black and white face paint and is known for bloodying himself, breathing fire and performing various antics with his tongue, which is roughly the length of a garter snake.
Company founder Herb Kelleher preferred Elvis impersonations. But Southwest isn't Kelleher's airline anymore. Just four months after taking over, Kelly has changed the tone.
First, he ended the company's 25-year ride on the fence over the Wright Amendment, the federal restriction that limits the distance of passenger flights from Southwest's home base at Dallas Love Field. The move puts the airline in the center of what has been a long-running political firestorm.
Then, last week, Kelly offered $100 million to buy some of the assets of bankrupt ATA Airlines, a deal that may spark industry consolidation among low-fare carriers.
The moves signify more than Kelly's coming out as a CEO. They are the result of a fundamental shift in the airline industry. Southwest, by some counts, carries more passengers than any other U.S. airline, and low-fare carriers are the only ones making money. They are no longer content with second-tier status in the industry.
Southwest and other profitable upstarts like AirTran and JetBlue are beginning to define the next phase of airline deregulation.
But it's unclear if Southwest will embrace the old rules or rewrite them, now that it has the power.
Kelly's decision to end his company's 25-year silence on the Wright Amendment clearly reflects the industry's new competitive spirit. The law was an attempt by big carriers to stifle a fledgling Southwest. Instead, it became a protective environment that kept the predators at bay.
'Passionately neutral'
So for decades Southwest said it was "passionately neutral" about the Wright Amendment, refusing to join in any attempts to lift it.
But it doesn't need the law any more. It needs to expand, and the Wright Amendment is getting in the way. Kelly decided it's time to take sides.
Recognizing his airline's clout, he's vowed to boost Southwest's lobbying efforts if necessary. If he succeeds, score one for competition.
Then there's the ATA deal, which is a little more suspect. For $100 million, Southwest would buy six of the 14 gates that ATA controls at Chicago's Midway Airport, as well as a maintenance base.
In fact, according to the Indianapolis Star, Southwest has offered to take nearly complete control of Indiana-based ATA, injecting $47 million in cash, taking a 35 percent stake in the airline and naming new senior executives who would work to cut labor costs 15 percent to 20 percent.
Southwest also would create a code-sharing agreement for about nine cities. Code-sharing, you may recall, is where you think you're buying a ticket on one airline and find out you're flying on another.
Legacy-carrier feel
Southwest has avoided code-sharing — its only previous deal was with Icelandair — because its customers are fiercely loyal and its flying style is unique.
It's a cheap way that cash-strapped big airlines expand, a form of virtual capital investment. Southwest has never expanded on the cheap. If it thought the code-share markets were viable, it would fly there itself.
Code-sharing gives the ATA deal a legacy-carrier feel, and it's disheartening to see the industry's new lead dog resort to old tricks.
Southwest says its bid is good for competition because it helps ATA keep flying, which is disingenuous. Airlines don't want to see other airlines keep flying. Fewer airlines means more passengers for those who remain.
No remorse
Southwest, after all, showed no remorse for US Airways as that carrier headed for bankruptcy. Instead, it moved into Philadelphia, a major US Airways hub, and stepped up flights as the other carrier faded away.
The real issue behind Southwest's bid is expansion at Midway, which, like Love Field, is a crucial market where it feels restricted. With ATA's six gates, Southwest would control more than half the airport.
The deal also blocks a major competitor, AirTran, from expanding. AirTran made a $90 million bid for all of ATA's gates, as well as some assets in other cities.
Wait for winner
A bankruptcy judge will review both offers and announce a winner by week's end. If AirTran wins, South-
west will be stuck with its current 19 Midway gates, while AirTran expands from two to 16 — more competition at Midway, just not necessarily the kind Southwest would prefer.
AirTran executives already have denounced Southwest's bid as anticompetitive.
Under Kelly, though, Southwest isn't shying from controversy. The battle for airline dominance has shifted, and Southwest is now setting the tone for the next round of competitive battles.
We should have seen it coming back in October.
Elvis has left the building. The future of the airline industry was ushered in with black and white face paint.
