Flying High Keys to success of Southwest are low fares, costs


Chicago--Forget management jargon like "total quality management." Mike Dapkus and Mike Kendall, baggage handlers at Midway Airport, have their own ideas about Southwest Airlines' remarkable success.

"This is a loose place to work for," Mr. Dapkus said last week during a 20-minute break from loading and unloading Southwest's 737s.

"What he means to say is that we have a relaxed employment atmosphere," Mr. Kendall interjected.

"And we're always on the move," Mr. Dapkus said.

"I think what he means is that we don't make money when the planes are on the ground," added Mr. Kendall, laughing as he parroted Southwest's unofficial motto.

Such lighthearted worker relations, combined with a company wide vigilance for cost-cutting, have turned Dallas-based Southwest into one of the nation's safest, most punctual and most efficient airlines.

Once a niche carrier in Texas, Southwest has become the nation's most dynamic airline -- and the only one to make money in each of the last five years. It continued to expand last week, tackling the East Coast market by adding service to Baltimore -- at a time when competitors are shrinking and losing money.

Southwest's success has spawned a series of myths that try to explain away its low prices, on-time record and profitability.

Some say the airline prospers because it flies in the West, where skies are less congested and costly delays less frequent. Others argue that the carrier isn't burdened by imperious unions. And some attribute the success entirely to Chairman Herb Kelleher, a charismatic showman who will impersonate Elvis or pull other stunts to make his 12,500 employees feel part of a family-run business.

But there is no secret to Southwest's success. Its strategy had worked for other airlines, such as People Express, before delusions of grandeur caused them to nose-dive.

Southwest has thrived with rock-bottom prices that have changed commuting habits. As Southwest dominated the Los Angeles-Oakland flight corridor, for example, fares dropped 60 percent. Meanwhile, traffic tripled as many drivers switched to flying because of the low $69 one-way fare.

Such deals aren't listed as temporary, promotional fares or fares slashed in response to desperate price wars. In fact, Southwest can charge these prices and make a tidy profit -- $103.6 million on revenues of $1.7 billion last year.

Key strategies

The low fares are made possible by focusing on a few key strategies that Southwest has perfected during 22 years in the business.

Southwest flies short hops from one city to the next -- 80 percent of its passengers fly routes of 500 miles or less. Although passengers can fly from Chicago to Los Angeles, their plane would stop in Kansas City and Phoenix. But because Southwest's planes are rarely on the ground for more than 15 bTC minutes, the inconvenience is bearable for many.

That short-hop strategy has allowed Southwest to avoid building glitzy hubs and developing complicated connecting flight schedules. Instead, it bases its operations in under-used airports, such as Midway and Baltimore-Washington International Airport.

This focus on simplicity extends well beyond scheduling. By flying only 737s, for example, Southwest's parts and repair work is simplified.

At Midway, maintenance supervisor Bob Rushlow keeps 5 million spare parts on hand. If Southwest flew other planes, even comparable ones like DC-9s, it would need another 5 million parts, he said.

Another hidden advantage: Maintenance crews get to know their work intimately and can solve virtually any problem without lengthy delays. "These guys get so sharp, I hardly ever have to go over and help out," Mr. Rushlow said.

As Southwest's red-and-gold planes pause at Midway, servicing is simplified, too.

Using one model jet means bags can be loaded and unloaded more quickly. Southwest also needs only one type of conveyor belt to haul out the luggage, said Jesse Bines, who supervises crews loading the planes.

At a boarding gate above the baggage handlers, Southwest agentJanet Czajkowski said the company's decision to forgo advance seating assignments makes her job easier and saves on personnel. Instead of hunting for seats in a computer, she simply takes passengers' tickets and hands them reusable plastic boarding passes.

When they board the plane, they hand over their passes and choose their seats.

Although some people don't like that procedure, Southwest smooths over most objections by pre-boarding older passengers and families with children.

Even families who arrive late, Ms. Czajkowski said, often sit together because flight attendants find passengers willing to move to another seat.

Nickel-and-dime savings

Behind her counter by the gate, Ms. Czajkowski said she can easily handle boarding for three flights at once, simply by using a different-colored pass for each flight.

By contrast, other airlines usually assign two employees per flight per gate.

These nickel-and-dime savings add up. Southwest's costs were less than 6 cents per seat-mile last year, compared with an industry average of more than 9 cents, the U.S. Department of Transportation reported this year.

Low costs are the key to Southwest's success, said Robert McAdoo, an analyst with Prudential Securities Inc.

Other explanations don't hold water, he added, noting that the airline has built congested Los Angeles into a stronghold.

And with 88 percent of its work force in a union, Southwest is more heavily unionized than other carriers.

"This is not one of these so-called renegade airlines," he said.

"Southwest has been around for 22 years and has an excellent financial structure. It knows what it does best and doesn't vary from its formula."

By contrast, airlines such as People Express and Midway Airlines succeeded by offering low-cost flights but then began to emulate big airlines. People Express bought jumbo jets, started long-haul flights across the country and to Europe and bought out a bankrupt airline. Soon, the airline had overextended and was bankrupt itself.

Maybe just as important to Southwest's long-term success is the way it manages and motivates employees.

Although heavily unionized, the company has negotiated flexible work rules that allow employees to do multiple tasks. They're also encouraged to assume responsibility.

Mr. Bines, the grounds crew supervisor, said he believes the difference is Southwest's ability to turn around airplanes quickly: "While we're pushing out four or five planes, other airlines have just pushed back two."

Morale is kept high through a zany corporate culture that begins at the top, where Mr. Kelleher combines a politician's gift of remembering employees' names with the ability to motivate.

In turn, employees -- who can participate in a profit-sharing plan -- pride themselves in being slightly off-the-wall. Attendants have been known to sing the emergency instructions at takeoff, and one stewardess even greeted passengers from the overhead luggage bins -- until an elderly passenger jumped back in shock and asked for an oxygen mask.

Southwest's prospects are not unlimited.

Analysts and company officials agree that hub-and-spoke operations, which the company has shunned, are needed in some regions. Passengers in small towns, for example, have no choice but to hop to hubs in bigger cities before traveling long distances.

In addition, Southwest's decision to fly only the mid-sized 737 means it cannot offer international flights.

Bare-bones service

Its bare-bones service also may not appeal to everyone. When Southwest announced service from BWI to Cleveland and Chicago, for example, USAir responded that its customers can have their bags transferred to other airlines, reserve seats in advance and enjoy in-flight meals.

And while Southwest's low fare strategy may have capitalized on recession-induced penny-pinching, what happens when luxury returns to fashion?

Still, the airline's cautious growth strategy is likely to protect it from costly errors.

And don't forget its award-winning record for on-time service, baggage-handling and customer satisfaction, popular in any economic climate.

Larry Fournier, a 55-year-old title insurance underwriter who commutes twice weekly on Southwest's San Diego-to-Oakland route, said Southwest has saved him thousands of dollars. While preparing to return home on Southwest from a vacation in Chicago, he marveled that flights between San Diego and Oakland once cost $330. Now they cost $89 -- thanks to competition sparked by Southwest.

"People on an airplane are often under stress, and Southwest's crew does its best to relieve that tension," Mr. Fournier said.

"As a passenger, this is the best airline I've ever been on. It's that simple."

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