Herb’s Flight Plan
Record profits. Great service. A wacky corporate culture. Yeah, yeah, we’ve heard it all before. But where will Southwest Airlines go in the future? Everyplace. And where will Herb Kelleher go? No place—for now.
It’s a typical day at anything-but- typical Southwest Airlines. Employees scurry around the company’s headquarters on the edge of Dallas’ Love Field in jeans, T-shirts, and other casual attire. Upstairs in the executive suite, their gregarious commander-in-chief, Herb Kelleher, is wearing his CEO power suit: a denim shirt, gray slacks, and topsiders. Having fun at work tops the agenda here, and Kelleher sets the tone, joking with colleagues, hugging female and male co-workers, and gleefully plotting the course for Southwest’s flight into a new millennium. At an age when other chief executives have retired to the golf course or the tennis court, Kelleher, who turns 68 on March 12, is the Energizer Bunny of the skies: He keeps going and going, beating the drum for low fares and frequent hops between more and more cities.
The beat, though, is changing. The hops are getting longer, and Kelleher—as much as he insists that he doesn’t plan to retire—can’t keep going forever. What’s arguably the most successful airline in the business, one that transformed the way people think about travel, is in the midst of its own evolution. The tiny carrier that began flying almost 28 years ago between Dallas, Houston, and San Antonio and built a reputation on short, no-frills flights is now taking giant leaps to both coasts. And it’s landing in some unlikely places. On March 14 the airline will jump all the way to Islip, Long Island’s MacArthur Airport, its first entrée into the New York market. “We’re going to continue to add new cities,” Kelleher says—perhaps two or three each year.
Looking at Southwest’s expanding route map, with lines connecting dots all over the country, it’s clear that the company isn’t just the national airline of Texas anymore. It’s a national airline, period. And it’s only going to get more national as time goes on.
At the Seattle Airport last fall to catch a flight back to Texas, I did a double take: a Southwest plane was taking off. It’s a familiar sight at Love Field, Houston’s Hobby Airport, and the other airports all over Texas, of course, but to see the familiar tan, red, and orange stripes streaking down a runway in the Pacific Northwest was startling. It underscored just how far Southwest has spread its wings.
Since its very first flight—from Dallas to Houston—the airline has pushed into every corner of the country and into the largest aviation markets: Chicago, Los Angeles, and in recent years, the East Coast. Since starting service to Baltimore in 1993, it has added flights up and down the Atlantic seaboard: to Florida and Providence, Rhode Island, in 1996; to Manchester, New Hampshire, last June; and now to New York, from which Southwest will initially make twelve daily nonstops (eight to Baltimore, two to Chicago, and one each to Nashville and Tampa). “In the early years, if anyone had suggested we’d be going into the Northeast or Chicago, we’d have laughed,” says Rollin King, who founded Southwest with Kelleher and served for seven years as its president (though he is now retired, he still sits on the company’s board, as he has since the company’s inception). When it started flying, the airline had only three planes, and it had to move them around quickly and keep them in the air to survive. Today Southwest has a fleet approaching three hundred planes and flies to more than 50 cities in more than half the states in America. Analysts say the cities it will likely serve next are Allentown, Pennsylvania; Richmond, Virginia; Greensboro, North Carolina; and Fort Myers, Florida. Southwest will say only that it has 150 to 160 cities on its list of prospects and doesn’t like to commit to anything too far in advance. “We try to stay fairly nimble in our opportunities,” says Jim Wimberly, its executive vice president of operations.
As Southwest expands, though, its once-sharp image as a short-haul airline is getting blurry. While it still flies point to point rather than hub to hub, as its larger competitors do, the average length of its flights has jumped from five hundred miles in the early nineties to more than six hundred miles by the end of last year. The average fare has crept up too, from just under $60 in the early nineties to about $75 today. At the end of 1998, about 300 of its more than 2,300 daily flights—roughly 13 percent—lasted two hours or longer. Until recently, passengers could fly cross-country on the airline only by making a stop in Nashville, Albuquerque, Phoenix, or Kansas City, Missouri. (It hasn’t routed those flights through Houston because they would compete against long-haul flights by American and other big airlines; it hasn’t routed them through Dallas because a federal law known as the Wright Amendment prohibits long-haul flights from Love Field.) These days, however, Southwest is nearly transcontinental. Last Thanksgiving it made a test run of its first nonstop flight from Baltimore to Oakland, which cost $99 each way. The next month, it added three daily nonstop flights from Baltimore to Phoenix—at two thousand miles, the longest regularly scheduled flight in Southwest’s history.
“When we first started flying,” says King, “we thought fifty minutes to an hour was about the longest customers would take for single-class service with no amenities at all, other than drinks and peanuts. It’s as much that the traveling public has changed.” Indeed, seduced by cheaper fares, passengers seem willing to give up expensive perks like meal service, movies, assigned seating, and first-class sections in favor of cattle-car boarding, peanuts, and packed Boeing 737s. On long flights many people bring boxes of Kentucky Fried Chicken or other food of their own aboard, though that may no longer be necessary; Southwest recently amended its food-service policy, and now, on certain flights, flight attendants offer a “snack pack” with a sausage link, cheese, crackers, and a granola bar.
The long flights have also been an adjustment for the flight attendants, who are used to short jaunts and snappy service, says Paul Sweetin, the president of the Transport Workers Union Local 556, which represents Southwest’s five thousand flight attendants, himself included. “The long hauls have been a real big problem,” he says, “because our group is not used to it, and neither are the passengers. Passengers get a little irritable on the long hauls, and there’s not a lot for the flight attendants to do.”
Why is Southwest messing with a strategy that has worked so well for so long? Kelleher contends it isn’t. ‘We’re not changing our niche or anything,” he says, adding for emphasis that longer-haul, low-frequency service is merely “an adjunct.” Yet he knows that Southwest has a strong incentive to make longer flights, and not only because passengers like the low fares. In October 1997 a new law took effect that reduced the 10 percent federal excise tax on domestic airline tickets but added a new tax on each segment of a flight per ticket. By the year 2002, the tax will be $3 per segment. Airlines that fly short, frequent hops will pay substantially more, while those that fly long distances will pay less. Southwest can’t jack up fares significantly to offset the tax if it wants to continue offering the lowest fares in its markets, so it has started hedging against those higher costs by rapidly adding flights of more than one thousand miles.
How quickly can Southwest expand? That depends on how quickly it can get planes. It flies only one type of aircraft, the Boeing 737, in an all-coach configuration to simplify operations and save on training, scheduling, and maintenance costs. The airline has ordered 129 new Boeing 737-700s, which can fly faster, farther, higher, and more quietly and efficiently than the older planes. Last year Boeing fell behind on its deliveries, delaying Southwest’s service to Islip, but the production problems have been smoothed out. Southwest now plans to get 29 of the new planes by the end of 1999; all systems go.
If success has been good for Southwest and its employees, it has also had the inevitable effect of turning a small company into a big one. Its annual revenues, about $4 billion, are greater than those of several formidable companies, including Clorox and Estée Lauder. It’s also the nation’s most consistently profitable airline, with profits for 26 consecutive years, the last 7 of them company records.
All of which is to say that as much as it still tries to preserve its small-shop atmosphere, the reality is that Southwest wields a big stick in the airline business nationally and even internationally. A slew of airlines in the United States, Europe, and Japan have tried to copy its low-cost, short-haul model with varying degrees of success. Continental tried it with Continental Lite, racked up $100 million in losses in 1994, and pulled the plug on the venture a year later. Smaller carriers like ValuJet (now called AirTran), Kiwi International, and Western Pacific Air also adopted the short-flight, low-fare formula. Richard Branson’s Virgin Atlantic Airways set up a low-cost European operation, Virgin Express, and Branson has said he wants to start a Southwest-type airline in America if he can persuade Congress to ax a federal law restricting foreign ownership of U.S. airlines. Large carriers like Delta and US Airways also have set up low-cost divisions, and American late last year announced its purchase of Reno Air, a struggling low-fare carrier that serves West Coast cities (see “The Canadian at American,” page 25). Meanwhile, a week after Southwest announced its service to Long Island, American said its commuter partner, American Eagle, would begin flying there.
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