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Southwest Airlines (SWA) |
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Southwest Airlines began in 1971 by launching service between the Texas Triangle cities of Houston, Dallas and San Antonio. Southwest became a major airline in 1989 when it exceeded the billion-dollar revenue mark. Today, it carries more passengers in the United States than any other carrier, making it not only the king of low-cost airlines, but the king of domestic airlines. In a notoriously cyclical industry, the Dallas-based company somehow finds a way to grow profitably, even as its largest competitors file bankruptcy. In 2006, it reported its 34th consecutive annual profit. From 2002 to 2006, when its ten largest competitors lost $58.5 billion, Southwest earned $2 billion, according to FLTops.com. (FLTops members can visit our “Revenue and Profits – Major Airlines” page.) Southwest has always attributed its success to its emphasis on excellent customer service and a sense of humor. It has long enjoyed a reputation for being a fun airline, in part because of its wisecracking flight attendants and the antics of Founder and Executive Chairman Herb Kelleher. He has dressed up like Elvis, given out whiskey with airline tickets and once set an industry dispute with an arm-wrestling match. However, Southwest’s strength also comes from sticking to a simple business model, which shuns the major hub and spoke operations used by network carriers for point-to-point flying that reduces its costs while offering passengers more direct flights. The Southwest Effect Southwest has become so effective at what it does that aviation experts coined the term “The Southwest Effect” to describe how airfares fall and traffic increases whenever it enters a market. Today, Southwest claims to be market leader in 92 of the top 100 destinations it serves. In August 2007, it will attack the San Francisco market by launching 18 daily flights – the largest ever market launch in its history. The airline's approach has produced impressive operational performance. It won the coveted “Triple Crown” of the industry for five consecutive years by having "Best On-time Record," "Best Baggage Handling," and "Fewest Customer Complaints" from 1992-1996. Fortune magazine has included the company on its list of “Most Admired Companies” on multiple occasions. Pilot hiring at Southwest is driven primarily by growth as only a small number of its pilots reach age 60 and retire each year. From 2005 to 2010, the airline estimates about 60 to 70 pilots will retire each year. In 2006, Southwest hired 628 pilots, more than any other U.S. airline, according to FLTops' "Pilot Hiring History - Major Airlines" page. In 2007, it expects to hire 640 pilots, according to FLTops.com’s “Pilot Hiring – Major Airlines” page. Competition for the positions will be intense given that Southwest’s experienced B737 captains are the best paid among the ten major airlines tracked by FLTops.com’s “Major Airline Pay Rate” page. A strong corporate culture It is no secret that attitude plays a major role in getting hired at Southwest. The company is fond of saying, “We take competition seriously, but we don’t take ourselves seriously.” Its approach is to hire for attitude and train for skills. Southwest has traditionally shunned debt as part of its conservative financial strategy. It has also been very deliberate and disciplined when expanding into new markets. Both have helped it earn profits, while competitors hemorrhaged money. Southwest is patient. After 30 years of fighting local government and cross-town rival American Airlines, it finally persuaded Congress in 2006 to repeal provisions of the Wright Amendment that restricted it to flying to eight nearby states from its home at Love Field. Southwest is an innovator. In 1971, it became the first major airline to offer profit sharing to employees. They now own 8 percent of the company. In 1998, it became the first airline to purchase the Boeing 737-700. It has since shifted to an all-737 fleet, which keeps down maintenance costs. More recently, it became the first major airline to offer ticketless travel through its Web site. In 2006, more than 70 percent of Southwest’s passenger revenues came through its Internet site. This insularity, however, has not sheltered Southwest from unions. About 82 percent of its 32,644 employees are covered by collective bargaining agreements, many of which come up for negotiation in 2007 and 2008. Pilots are represented by the independent Southwest Airline Pilots Association, which began renegotiating its members’ contract when it became amenable in September 2006. An airline in transition Southwest acknowledges that the cost advantage it has traditionally wielded over network carriers has been significantly diminished. Thanks to bankruptcy laws, United Air Lines, US Airways, Delta Airlines and Northwest Air Lines have all slashed their costs, in large part by extracting billions of dollars in annual cost savings out of their labor unions. Moreover, JetBlue, AirTran, Skybus and other upstarts are duplicating its business model. Southwest’s profits fell nearly $50 million in 2006 to $499 million on revenues of $9 billion. In the first quarter of 2007, operating earnings fell 14.3 percent, prompting CEO Gary Kelly to warn that rising competition, high fuel costs and slackening demand would make it difficult for the company to stick with its long-standing goal of 15 percent annual revenue growth beyond 2007. To reach that goal, Southwest will be focusing more on how to squeeze more revenue out of existing passengers. It has also said it will launch international flights in 2009. “We are,” Kelly said during his 2007 first quarter earnings conference call, “in a transformation.” The interview gouge, number of pilots, minimum qualifications, hiring status, crew bases, pay scales and fleets are available to FLTops.com members only. Join today for only $4.95 per month (after the initial fee). Click here to see why else you should join FLTops.com. |
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