AF757Pilot
Finally at SWA
- Joined
- Jun 23, 2002
- Posts
- 66
It has been way to quiet on the SWA track. So, I thought I would post this article.
Southwest's Success Proves Difficult To Copy
By STEVE JOHNSON
Published on 5/4/2003
As the rest of the airline industry struggles through what some experts call its worst financial debacle ever, the success of Southwest Airlines is nothing short of remarkable.
In 2001 and 2002, while other carriers hemorrhaged red ink after the Sept.11, 2001, attacks, low-cost, no-frills Southwest was the only top-10 airline to post a profit. In fact, it has made money for 30 consecutive years and has continued to do so despite the war in Iraq and the severe acute respiratory syndrome outbreak.
Declared the nation's best stock performer over the past three decades by Money magazine last year, Southwest has become a model for the industry. Some airlines are trying desperately to get their expenses more in line with those at Southwest. Others are launching low-cost airlines of their own.
But copying Southwest isn't easy, particularly in the way it deals with its workers.
Although Southwest has the highest percentage of unionized employees of any major carrier, its labor costs have remained relatively low. And although bitter management-employee relations have plagued some of its competitors — most recently American Airlines, whose chairman resigned amid a near-revolt by its unions — Southwest's relatively rancor-free workplace is legendary.
“The company is 100 percent for the employees,” said 47-year-old Frank Perez of Los Banos, Calif., who supervises Southwest baggage handlers and other so-called ramp workers at Mineta San Jose International Airport. “That's what makes it really sweet.”
Southwest pioneered the low-cost air travel market when it began lugging passengers between Houston, San Antonio and its Dallas headquarters in 1971. And it has managed to stick with that focus by keeping its operating costs low.
While other airlines maintained an expensive presence in the biggest cities, Southwest was content to fly out of smaller, cheaper airports, such as those in San Jose, Calif., and Oakland, Calif., where it is the largest airline in terms of passengers carried.
While other airlines flew a variety of planes, Southwest used only one type — the Boeing 737, which kept the company's maintenance and training costs relatively low.
And while some airlines expanded rapidly — earning huge profits in good times and suffering staggering losses in bad — Southwest's careful, plodding strategy paid off with less spectacular but nonetheless impressive growth.
“They started off flying under the radar, so to speak — secondary airport to secondary airport,” said Michael Allen, chief operating officer of BACK Aviation Solutions, a consulting firm. “And over time they were able to grow and consistently build profit.”
By 1977, Southwest was listed on the New York Stock Exchange. By 1989, its revenue topped $1 billion, the benchmark of a major airline. By last year, it led the industry in Internet bookings, getting nearly half its revenue from its Web site sales.
That last point is noteworthy not only because Internet tickets cost less to process than those sold by agents. Unlike other carriers, Southwest has lured plenty of customers without partnering with travel Web sites Expedia, Travelocity and Orbitz.
“Their customers seek them out, which is tremendous,” said Paul Berliner, an industry consultant. “I mean, my goodness, that's what you dream about.”
With more than 2,700 daily flights to 58 cities, Southwest has become the sixth-largest U.S. airline in terms of passengers carried. But the company likes to point out that it is the fourth largest, if international routes — which it does not fly — are excluded.
Southwest's popularity is largely due to its low fares, which have become especially important to corporate customers in the current economy. Tired of paying stiff prices for last-minute flights on other airlines, business travelers have switched to Southwest and other low-cost carriers in droves.
Moreover, even without assigned seating, Southwest consistently outscores most of its competitors in customer satisfaction, according to federal airline complaint data.
Its reliability particularly impresses Roberta Ciancio, 53, of La Quinta, Calif., who flies to San Jose at least three times a year to visit her daughter in Santa Cruz, Calif.
“I like it,” she said of Southwest. “They're on time when they leave and they get you there on time.”
Some other low-cost airlines are doing OK, too, especially JetBlue, which has lower per-mile costs than Southwest and recently reported a first-quarter profit, its ninth consecutive profitable quarter. But most major carriers are having a hard time.
“It's by far the worst we've ever seen in industry losses,” said George Mikelsons, chief executive officer of ATA Airlines, which also specializes in low fares and is the 10th largest air carrier. “It's a tough row to hoe for the big guys.”
Indeed, while Southwest earned a combined $752 million profit in 2001 and 2002, the losses for the nine other major airlines over that period totaled $18.9 billion.
Not surprisingly, many airlines are trying to copy Southwest. Delta Air Lines rolled out its low-cost airline — Song — about three weeks ago. And UAL Corp., the parent of United, has announced plans for a discount service of its own. But similar efforts in the past — such as United's Shuttle, U.S. Airway's Metrojet and Continental's Continental Lite — flopped.
Most airlines have had trouble mimicking Southwest because its expenses are lower than theirs. Southwest's cost to fly one seat a mile was 6.3 cents in 2002, compared to 7.9 cents for Continental, 8.4 cents for Delta, 8.3 cents for American and 10.4 cents for United.
Much of that difference stems from the industry's growing labor costs, which accounted for 35 percent of the typical airline's costs in 2000 and 44 percent in 2002. Although 81 percent of Southwest's 35,000-plus employees belong to unions, their salaries are lower that those at some other airlines.
A Southwest 737 captain with 10 years' experience averaged $148,824 a year as of October, according to data compiled by Aviation Information Resources of Atlanta. By comparison, a comparable captain earned $151,272 at American, $187,392 at Delta and $196,236 at United.
Southwest partly makes up for that difference with company barbecues, costume contests and a bend-the-rules work environment. That means flight attendants can joke while giving passenger instructions, for example, and ticket agents can decide on their own to accommodate emergency ticket changes without charging extra or going through the usual red tape.
But Southwest also offers significant financial incentives, including profit sharing and 401k plans, as well as stock options. Although the company's stock has sagged in the past couple of years, $100 invested in it 10 years ago would be worth about $400 today.
That's much better than the industry average, said Jim Corridore, an airline analyst for Standard & Poor's. So while other carriers also offer stock options, those company's plans generally aren't in Southwest's league.
“All they've been successful in doing,” Corridore said of Southwest's competition, “is getting their employees to share the pain and not the profits.”
Southwest's Success Proves Difficult To Copy
By STEVE JOHNSON
Published on 5/4/2003
As the rest of the airline industry struggles through what some experts call its worst financial debacle ever, the success of Southwest Airlines is nothing short of remarkable.
In 2001 and 2002, while other carriers hemorrhaged red ink after the Sept.11, 2001, attacks, low-cost, no-frills Southwest was the only top-10 airline to post a profit. In fact, it has made money for 30 consecutive years and has continued to do so despite the war in Iraq and the severe acute respiratory syndrome outbreak.
Declared the nation's best stock performer over the past three decades by Money magazine last year, Southwest has become a model for the industry. Some airlines are trying desperately to get their expenses more in line with those at Southwest. Others are launching low-cost airlines of their own.
But copying Southwest isn't easy, particularly in the way it deals with its workers.
Although Southwest has the highest percentage of unionized employees of any major carrier, its labor costs have remained relatively low. And although bitter management-employee relations have plagued some of its competitors — most recently American Airlines, whose chairman resigned amid a near-revolt by its unions — Southwest's relatively rancor-free workplace is legendary.
“The company is 100 percent for the employees,” said 47-year-old Frank Perez of Los Banos, Calif., who supervises Southwest baggage handlers and other so-called ramp workers at Mineta San Jose International Airport. “That's what makes it really sweet.”
Southwest pioneered the low-cost air travel market when it began lugging passengers between Houston, San Antonio and its Dallas headquarters in 1971. And it has managed to stick with that focus by keeping its operating costs low.
While other airlines maintained an expensive presence in the biggest cities, Southwest was content to fly out of smaller, cheaper airports, such as those in San Jose, Calif., and Oakland, Calif., where it is the largest airline in terms of passengers carried.
While other airlines flew a variety of planes, Southwest used only one type — the Boeing 737, which kept the company's maintenance and training costs relatively low.
And while some airlines expanded rapidly — earning huge profits in good times and suffering staggering losses in bad — Southwest's careful, plodding strategy paid off with less spectacular but nonetheless impressive growth.
“They started off flying under the radar, so to speak — secondary airport to secondary airport,” said Michael Allen, chief operating officer of BACK Aviation Solutions, a consulting firm. “And over time they were able to grow and consistently build profit.”
By 1977, Southwest was listed on the New York Stock Exchange. By 1989, its revenue topped $1 billion, the benchmark of a major airline. By last year, it led the industry in Internet bookings, getting nearly half its revenue from its Web site sales.
That last point is noteworthy not only because Internet tickets cost less to process than those sold by agents. Unlike other carriers, Southwest has lured plenty of customers without partnering with travel Web sites Expedia, Travelocity and Orbitz.
“Their customers seek them out, which is tremendous,” said Paul Berliner, an industry consultant. “I mean, my goodness, that's what you dream about.”
With more than 2,700 daily flights to 58 cities, Southwest has become the sixth-largest U.S. airline in terms of passengers carried. But the company likes to point out that it is the fourth largest, if international routes — which it does not fly — are excluded.
Southwest's popularity is largely due to its low fares, which have become especially important to corporate customers in the current economy. Tired of paying stiff prices for last-minute flights on other airlines, business travelers have switched to Southwest and other low-cost carriers in droves.
Moreover, even without assigned seating, Southwest consistently outscores most of its competitors in customer satisfaction, according to federal airline complaint data.
Its reliability particularly impresses Roberta Ciancio, 53, of La Quinta, Calif., who flies to San Jose at least three times a year to visit her daughter in Santa Cruz, Calif.
“I like it,” she said of Southwest. “They're on time when they leave and they get you there on time.”
Some other low-cost airlines are doing OK, too, especially JetBlue, which has lower per-mile costs than Southwest and recently reported a first-quarter profit, its ninth consecutive profitable quarter. But most major carriers are having a hard time.
“It's by far the worst we've ever seen in industry losses,” said George Mikelsons, chief executive officer of ATA Airlines, which also specializes in low fares and is the 10th largest air carrier. “It's a tough row to hoe for the big guys.”
Indeed, while Southwest earned a combined $752 million profit in 2001 and 2002, the losses for the nine other major airlines over that period totaled $18.9 billion.
Not surprisingly, many airlines are trying to copy Southwest. Delta Air Lines rolled out its low-cost airline — Song — about three weeks ago. And UAL Corp., the parent of United, has announced plans for a discount service of its own. But similar efforts in the past — such as United's Shuttle, U.S. Airway's Metrojet and Continental's Continental Lite — flopped.
Most airlines have had trouble mimicking Southwest because its expenses are lower than theirs. Southwest's cost to fly one seat a mile was 6.3 cents in 2002, compared to 7.9 cents for Continental, 8.4 cents for Delta, 8.3 cents for American and 10.4 cents for United.
Much of that difference stems from the industry's growing labor costs, which accounted for 35 percent of the typical airline's costs in 2000 and 44 percent in 2002. Although 81 percent of Southwest's 35,000-plus employees belong to unions, their salaries are lower that those at some other airlines.
A Southwest 737 captain with 10 years' experience averaged $148,824 a year as of October, according to data compiled by Aviation Information Resources of Atlanta. By comparison, a comparable captain earned $151,272 at American, $187,392 at Delta and $196,236 at United.
Southwest partly makes up for that difference with company barbecues, costume contests and a bend-the-rules work environment. That means flight attendants can joke while giving passenger instructions, for example, and ticket agents can decide on their own to accommodate emergency ticket changes without charging extra or going through the usual red tape.
But Southwest also offers significant financial incentives, including profit sharing and 401k plans, as well as stock options. Although the company's stock has sagged in the past couple of years, $100 invested in it 10 years ago would be worth about $400 today.
That's much better than the industry average, said Jim Corridore, an airline analyst for Standard & Poor's. So while other carriers also offer stock options, those company's plans generally aren't in Southwest's league.
“All they've been successful in doing,” Corridore said of Southwest's competition, “is getting their employees to share the pain and not the profits.”
