Southwest Airlines turned 40 years old this weekend, but don't expect the Dallas-based carrier to have a midlife crisis.
The airline changed the industry with its low fares, low costs and single-minded focus on customer service. And with its recent purchase of AirTran Airways, Southwest has positioned itself to continue to dominate U.S. skies."This is the largest U.S. domestic airline," said William Swelbar, an airline research at Massachusetts Institute of Technology. "This is no longer the nice little model that flew between Dallas, Houston and San Antonio. This is a big, complicated and more sophisticated airline."But co-founder Herb Kelleher still likes to think of Southwest as the little guy against carriers like United Continental Holdings, Delta Air Lines and American Airlines.Kelleher, who turned 80 this year, is chairman emeritus."The others have the whole world to cost-subsidize against us, so we're still the underdog, the David versus Goliath," Kelleher said Thursday at an event celebrating the anniversary.Where they've beenThe story of Kelleher drawing, on a bar napkin, a triangle among three major Texas cities has been told many times.And on June 18, 1971, Southwest Airlines started service among Dallas, Houston and San Antonio with three Boeing 737s.Touting $20 fares and flight attendants wearing hot pants, Southwest kept its operations within Texas until 1979, when it began service to New Orleans after deregulation of the airline industry."If it wasn't for Southwest Airlines, deregulation would have been a total failure," said Michael Derchin, CRT Capital Group analyst. "Deregulation was about cutting fares, and they were the only ones out there doing that."Southwest grew slowly, acquiring small carriers Morris Air and Muse Air. By the time it was 20 years old, Southwest was flying to 32 cities and had 124 aircraft.Now, the carrier serves over 100 destinations and has more than 700 aircraft after its May purchase of AirTran. And even as its rivals have filed for bankruptcy and battled high fuel costs, Southwest reported its 38th consecutive year of profitability in 2010."It's hard to argue that Southwest hasn't forced this industry to look in the mirror and fundamentally change its cost structure and change the way it is doing business," Swelbar said.Where they're goingAs Southwest gears up for the next 40 years, it has made several decisions in the past year to keep itself competitive.First, buying AirTran for $1.4 billion eliminated a low-cost competitor while enlarging Southwest's network.Southwest announced last year that it will purchase Boeing 737-800s, larger aircraft that will allow it to fly near-international routes and to Hawaii. The carrier is also developing a new reservation system."What we're seeing is a maturing company, a company that has to behave a little differently than it did in its first 40 years, and it seems to be making the right moves," Swelbar said.But with oil prices topping $100 a barrel this spring, Southwest faces a fuel bill that is $1.3 billion higher than a year ago."As you get older, your costs tend to go up, and even though they are still a low-cost carrier, they pay the same price for fuel as everybody else," Derchin said.As a result, Southwest has raised fares seven times this year, as have its competitors, as the industry passes along costs to customers.However, the carrier has maintained its policy that the first two checked bags are free and that customers are not charged to change reservations.Southwest CEO Gary Kelly said last month that he doesn't like fare increases, as he knows there is a price that consumers won't pay. But says demand from customers has supported fare hikes so far."We are still a very good value, especially compared to our competitors, especially when you consider all of the fees and we're mindful of that," Kelly said."We are more appealing now to people than we were 20 years ago."Andrea Ahles, 817-390-7613Have more to add? News tip? Tell us
