RSSThe Airline Industry Could Learn a lot From SouthWest
Southwest has been doing it right for some time now. Maybe the other airlines may want to steal some of their talent. Southwest just announced their first quarter numbers and they are great.
first-quarter earnings nearly tripled, thanks to successful fuel hedging and higher traffic in March.
Quarterly income rose to $76 million, or 9 cents a share, from $26 million, or 3 cents a share, last year. Revenue climbed 12 percent to $1.66 billion from $1.48 billion.
There numbers are looking incredible as compared to the rest of the industry. And a nice comparable chart. The have defied the industry trend in losing money.
They also are the “not so official” airline of BlogNashville.
Unofficial Airlines of BlogNashville
We don’t have an official airline but if we did it would be SouthWest Airlines. One of the factors that went into selecting Nashville as a host city is that there are cheap flights into Music City from a number of locations around the country.
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7 Responses to “The Airline Industry Could Learn a lot From SouthWest”
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Granted…Southwest does alot of things right. Namely flying one type of plane, point to point. Plus they do not fly outside the Continental US. But, the real “secret” of Southwest’s success was their advance purchase of fuel contrats back when prices were unbelievably low. If Southwest had bought fuel at the same prices as all the other airlines, they actually would have lost money like most of the others for most of the year. Those contracts are up this year. I am interested to see how they do next year.
Tomahawk, you are dead on right. Are you in the industry also?
Tomahawk, the fact that they did advance purchases while all others just sat back indicates a difference is business philosophy between proactive and retro. They have set a specific market and do not waver.
One can not just say “if only” or “its just because”. If that were the case then why did not other airline have the fore-thought to do the same? They sat back on their top heavy management bureaucracy and watched it happen. Sure they would have lost $’s if they had not negotiated contracts, wouldn’t we all? The fact is that even if they were paying the same fuel prices they probably wouldn’t have lost as much or may have found another innovative means of gaining a profit.
There is no one thing that ever determines the success of a business. Fuel contracts were a biggy, but there is more to SouthWest than just that. Sometimes its the corporate mind set and culture that allows such ideas to be heard and implemented.
Tom, I am kind of in the industry, but a family member is you could say, well placed in the industry.
Red, I agree that Southwest maximizies its profits by doing things well. But, the ONLY reason they made money (from an accounting point of view) is because of fuel costs for them. Other airlines like AirTran, JetBlue, America West, etc. use the same or similar business models and are making money or close to it. Southwest began the trend…ie no frills. But I would submit the smartest thing they did, and has since been copied, it flying only one type of aircraft, namely the easily maintained and versatile Boeing 737.
I think Southwest’s purchase/bailout of ATA (lets face it…Southwest wanted to prevent AirTran from getting a foothold in Chicago..and will eventually just put ATA out of business) was a good business move, but will cost them alot of money in the short run. Southwest is a great airline, but they have a comparative advantage to all other airlines (granted, they did it and deserve credit) with fuel costs. I will be interested to see how they do when they have to renegotiate their fuel prices.
Tomahawk,
All very true. One of the other customer perceptions that they benefit from is the supposed “no frills” angle. Little by little the gap is closing from the “no frills” vs larger airlines as the big boys are cutting back on many old conveniences they used to offer.
The standardization of the aircraft is also huge. States & the US Government should look at such business models and tell the environmentalists to take a flying leap in this country. The multi-grades of gasoline required from not only state to state, but county to county within states is ridiculous.
What I have come to see within business is that some have to corporate culture to embrace change and bold initiatives and then there are those that are destine to failure because they cannot get out of a certain mindset. Thinking out-side-of-the-box a good thing. You couldn’t prove it by many industries and businesses today.
SouthWest renegotiated fuel contract will be interesting. By the same token they seem to have some real bright talent that will find a way to keep ahead of the competition.
I think Seth Godin explains the problem for the legacy carrier very well.
http://sethgodin.typepad.com/seths_blog/2005/04/race_for_the_to.html
Excerpt
I found the same contrast up in the air. American Airlines is racing to the bottom as fast as they can. The staff has given up. No smiles, no service, no effort. Saving money is the order of the day. Jet Blue, on the other hand, continues to strive to get to the top. From the free wi-fi at JFK to the terminal they want to build there, to the snacks (they even suggest mixes–created by taking say, animal crackers and pretzels and mixing them up–even though it means people are taking twice as much!)
My wife works for a legacy carrier, and we live in a community where most of my neighbors are also “strongly affliated” with the company. I wish it was not so close to home , otherwise it would be an interesting case study.
Tom and Red I agree.
I never understood why delta created Song or United created Ted…they are creating “no frills” carriers to compete with themselves? Look at airlines like Delta, American, United…they fly not only several versions of the same Boeing aircraft, and several different 7′s, some still fly MD-80′s….but they also fly Airbus as well. Why? The costs to maintain these different type of aircraft, let alone the rudder/cockpit/instrumentation differences between Boeing and Airbus cost a fortune!
I sympathize Tim. What would be best for the industry would be to let a few legacies go the way of TWA and PanAm…but it would hurt the people involved.
But the nature of the beast I think will eventually lead to no frills partnering with legacies to do oeverseas routes while sticking domestic travels on no frill carriers. If I could fly JetBlue to NYC non stop and pick up a Delta flight to Heathrow non stop that would be ideal.