Flying Against Prevailing Winds
Saturday, May 26, 2007
DALLAS -- Never afraid to spurn conventional wisdom, Southwest Airlines is doing it again.
While other airlines are reducing domestic seats in response to softening demand, the quirky low-cost carrier is doing the opposite, expanding routes and flights in pursuit of a decades-long growth plan.
But that approach comes with risks and may require executives to begin tweaking a business strategy that has helped revolutionize commercial aviation.
Already, there are signs of trouble, some analysts say. Southwest's stock price has been stagnant. Its operating income dipped in the first quarter. Its planes have gotten less crowded. And it has begun losing the benefit of aggressive fuel hedges, which have saved the airline billions of dollars and kept it profitable while other carriers foundered in recent years.
"The current environment is a little tough," chief executive Gary C. Kelly conceded in an interview at Southwest's headquarters, a few hundred yards from the runway at Love Field here. He quickly added, however, that Southwest is "stronger than at any other point in our history."
The carrier's problems may stem from the same strategy that has rewarded the airline with 34 straight years of profit and a balance sheet that other airline executives envy. Last year, Southwest became the largest airline in terms of domestic traffic for the first time in its history. That success has drawn increased focus on Southwest's tactics and complaints from its competitors that so much growth could harm the industry because they can't charge higher fares to combat rising fuel costs.
Since its inception, Southwest has pursued apolicy of adding flights, seats and planes to gain market share, even in tough times. While other carriers were reeling from a major economic downturn and slashing their fleets, Southwest has added 120 planes since 2002, bringing the total to 494. It also increased the number of flights by 15 percent and its available seat miles, an industry measure of capacity, by 35 percent from 2002 through the end of last year, company data show.
During the first four months of this year, the carrier added 21,000 flights and 2.3 million seat miles, an 8 percent increase over the corresponding period in 2006. It plans to add 56 jets to its fleet by the end of 2008.
For the most part, Southwest used its growing fleet to serve less-expensive secondary airports near major markets, like Baltimore Washington International Thurgood Marshall Airport. That allowed Southwest to keep down costs and boost efficiency while reaching large numbers of customers. Southwest also served some larger airports where executives felt it could quickly gobble up market share .
But its growth, analysts say, has forced it to find airports that it had long avoided or abandoned: congested hubs dominated by major carriers and served by other low-cost airlines.
Last year, for example, Southwest moved into Denver and Washington Dulles International Airport, both served heavily by United Airlines. In 2004, it launched service in Philadelphia, a hub for US Airways.
It also plans to return to San Francisco International Airport in August, six years after abandoning the outpost because, executives said, it was too expensive. United has a major base of operations there.