Ryan Donnell for The New York Times
The two rivals' planes pass on a Philadelphia runway.
(picture here, did not print)
By MICHELINE MAYNARD
Published: December 26, 2004
TILL think of Southwest Airlines as a folksy company whose employees dress in golf shirts and tell jokes? Don't tell its competitors.
Southwest's victory last week in the battle for some assets of a bankrupt rival, ATA Airlines, revealed an aggressive new stance at the airline. Already the largest low-fare airline in the United States, Southwest is on a path to becoming the industry's most influential company, something its traditional competitors might never have envisioned.
Leading the charge is Southwest's feisty new chief executive, Gary C. Kelly, a Porsche-driving accountant with a sharp strategic focus. In less than six months on the job, Mr. Kelly, 50, has shown the potential to put as great a stamp on Southwest as its flamboyant chairman and co-founder, Herbert D. Kelleher Jr.
"It's a good start for anybody," Mr. Kelleher said of Mr. Kelly's short tenure.
Besides winning his bid for ATA, Mr. Kelly has rapidly expanded Southwest's flights in Philadelphia, where it started service only last May but may have already driven a lethal stake into the heart of US Airways, which uses Philadelphia as one of its three hubs.
He also has decided to take on the industry's biggest airline, American, to try to do away with Congressional limits on the places that airlines may fly from Love Field in Dallas, Southwest's home base. American is based at the Dallas-Fort Worth International Airport, about 11 miles away.
Alfred E. Kahn, who ran the old Civil Aeronautics Board when it deregulated airlines in 1978, said he was impressed with Southwest's latest moves. The deal with ATA "makes them even more formidable," said Mr. Kahn, an emeritus professor at Cornell University. The expansion in Philadelphia, he added, moved US Airways from "the frying pan into the fire."
Southwest will carry the most passengers in the United States this year, eclipsing Delta Air Lines, and it is expected to be the only major airline to make money in 2004, with an anticipated profit of about $335 million, rising to $430 million in 2005. Over all, the industry is set to lose a collective $5.5 billion this year.
Mr. Kelly says that all the moves are in line with a long-held strategy of constant growth at Southwest, the nation's sixth-largest airline, after American, United, Delta, Continental and Northwest. "Either you respond, or you miss the opportunity," he said, though he was quick to avoid taking too much credit. Since he took charge, he said, "I don't think there is anything different about Southwest or its leaders."
What is different about Southwest, compared with its rivals, is its balance sheet. It has $2 billion in cash on hand, and debts totaling about $1.9 billion; by comparison, Delta has about $1.45 billion in cash and $20 billion in debt. As a result, Southwest's $12 billion market capitalization is five times greater than any other airline.
Financial nimbleness has also played a role. While this year's spike in jet fuel prices played havoc with earnings projections at other airlines, for example, Southwest has stayed in the black. An important reason is that Mr. Kelly, in his previous job as chief financial officer, arranged hedging contracts to lock in lower prices.
With its debts and costs under control and its revenues recovering from the post-Sept. 11 slump, Southwest has the only investment-grade debt rating of any of the airlines tracked by Standard & Poor's. And it has 37.9 percent more cash than Delta, which used Southwest as a model for its recently drafted restructuring plan.
"Southwest never bleeds cash," said Delta's chief financial officer, Michael J. Palumbo. No matter the decision, he said, Southwest calculates the break-even point between its costs and its likely revenues. "They doggedly and with an incredible amount of discipline execute that, before they become the vicious competitor that they are" in any area, he said.
EASIER to do, perhaps, given that Southwest flies only one kind of aircraft, the Boeing 737, and does not serve destinations outside the United States, while Delta flies 12 kinds of aircraft made by four suppliers and has dozens of international routes.
But unlike Delta, which is still coming to grips with the high costs left from its past, Mr. Kelly need only worry about Southwest's future. The latest step came with the contest for the cream of ATA's assets, which Southwest won with its $117 million bid, besting a $90 million offer by AirTran Airways, another low-fare airline.
Under the deal, Southwest will get six of ATA's 14 gates at Chicago Midway Airport, giving it 25 of the airport's 43 gates. Southwest will set up a code sharing arrangement with ATA on some of its domestic flights, and will take a 27.5 percent stake in the airline once it emerges from bankruptcy
The two rivals' planes pass on a Philadelphia runway.
(picture here, did not print)
By MICHELINE MAYNARD
Published: December 26, 2004
TILL think of Southwest Airlines as a folksy company whose employees dress in golf shirts and tell jokes? Don't tell its competitors.
Southwest's victory last week in the battle for some assets of a bankrupt rival, ATA Airlines, revealed an aggressive new stance at the airline. Already the largest low-fare airline in the United States, Southwest is on a path to becoming the industry's most influential company, something its traditional competitors might never have envisioned.
Leading the charge is Southwest's feisty new chief executive, Gary C. Kelly, a Porsche-driving accountant with a sharp strategic focus. In less than six months on the job, Mr. Kelly, 50, has shown the potential to put as great a stamp on Southwest as its flamboyant chairman and co-founder, Herbert D. Kelleher Jr.
"It's a good start for anybody," Mr. Kelleher said of Mr. Kelly's short tenure.
Besides winning his bid for ATA, Mr. Kelly has rapidly expanded Southwest's flights in Philadelphia, where it started service only last May but may have already driven a lethal stake into the heart of US Airways, which uses Philadelphia as one of its three hubs.
He also has decided to take on the industry's biggest airline, American, to try to do away with Congressional limits on the places that airlines may fly from Love Field in Dallas, Southwest's home base. American is based at the Dallas-Fort Worth International Airport, about 11 miles away.
Alfred E. Kahn, who ran the old Civil Aeronautics Board when it deregulated airlines in 1978, said he was impressed with Southwest's latest moves. The deal with ATA "makes them even more formidable," said Mr. Kahn, an emeritus professor at Cornell University. The expansion in Philadelphia, he added, moved US Airways from "the frying pan into the fire."
Southwest will carry the most passengers in the United States this year, eclipsing Delta Air Lines, and it is expected to be the only major airline to make money in 2004, with an anticipated profit of about $335 million, rising to $430 million in 2005. Over all, the industry is set to lose a collective $5.5 billion this year.
Mr. Kelly says that all the moves are in line with a long-held strategy of constant growth at Southwest, the nation's sixth-largest airline, after American, United, Delta, Continental and Northwest. "Either you respond, or you miss the opportunity," he said, though he was quick to avoid taking too much credit. Since he took charge, he said, "I don't think there is anything different about Southwest or its leaders."
What is different about Southwest, compared with its rivals, is its balance sheet. It has $2 billion in cash on hand, and debts totaling about $1.9 billion; by comparison, Delta has about $1.45 billion in cash and $20 billion in debt. As a result, Southwest's $12 billion market capitalization is five times greater than any other airline.
Financial nimbleness has also played a role. While this year's spike in jet fuel prices played havoc with earnings projections at other airlines, for example, Southwest has stayed in the black. An important reason is that Mr. Kelly, in his previous job as chief financial officer, arranged hedging contracts to lock in lower prices.
With its debts and costs under control and its revenues recovering from the post-Sept. 11 slump, Southwest has the only investment-grade debt rating of any of the airlines tracked by Standard & Poor's. And it has 37.9 percent more cash than Delta, which used Southwest as a model for its recently drafted restructuring plan.
"Southwest never bleeds cash," said Delta's chief financial officer, Michael J. Palumbo. No matter the decision, he said, Southwest calculates the break-even point between its costs and its likely revenues. "They doggedly and with an incredible amount of discipline execute that, before they become the vicious competitor that they are" in any area, he said.
EASIER to do, perhaps, given that Southwest flies only one kind of aircraft, the Boeing 737, and does not serve destinations outside the United States, while Delta flies 12 kinds of aircraft made by four suppliers and has dozens of international routes.
But unlike Delta, which is still coming to grips with the high costs left from its past, Mr. Kelly need only worry about Southwest's future. The latest step came with the contest for the cream of ATA's assets, which Southwest won with its $117 million bid, besting a $90 million offer by AirTran Airways, another low-fare airline.
Under the deal, Southwest will get six of ATA's 14 gates at Chicago Midway Airport, giving it 25 of the airport's 43 gates. Southwest will set up a code sharing arrangement with ATA on some of its domestic flights, and will take a 27.5 percent stake in the airline once it emerges from bankruptcy
Neeleman thinks B6 will do quite well when they cross swords. They will stay out of WN's focus hubs, and go to BUF, ISP, RDU, STL, SDF, SLC, AUS, and ABQ. JFK will be the main 190 base in NE, MCO in the SE, STL in the Midwest, and SLC in the West. SLC has a soft spot in Neelemans heart, and he has many friends there when he's ready to make his move.
