Successful Southwest looking for a new model
Southwest Airlines is steering a new strategic course in what is shaping up as a major re-examination that would have been unthinkable in years past when it emerged as a profitable industry leader.
“Southwest has to modify its model because parts of it don’t work anymore,” aviation consultant Michael Boyd told The Dallas Morning News. What the airline is looking at:
v Southwest is perhaps best known for its open seating, but it is now studying seat assignments, implementing them possibly as soon as this winter.
v It is also putting together the computer capability to handle international operations.
v The airline is readying a test of wireless Internet service on board its planes.
v It is also looking at what amenities it needs to attract more passengers.
“They’ve been the darling, they’ve been the role model, they’ve been the intelligent one,” University of Portland business professor Rich Gritta said. “They did it with the brilliant operating strategy and the brilliant financial strategy. … Now things are going to get harder.”
Gary Kelly, vice chairman and chief executive of Southwest Airlines, says the company is looking at adding international flights, among other things, to raise its revenue.
The carrier has set a goal of increasing its annual revenue by $1 billion in the next few years by doing things it isn’t doing now.
“The impetus for the rethinking is that its costs have grown significantly in recent years as it feels the impact of higher fuel prices and labor costs, even as it’s facing new challenges from its trimmed-down older competitors and threats from newer rivals,” says the News.
In particular, its unit costs – the expense of flying one airplane seat one mile – have jumped 16% in two years. Southwest is trying to raise its revenue to compensate for the higher costs.
“It’s not new. It’s not surprising. It’s not unexpected, and we have been working to transform Southwest’s revenue-generating capabilities to address that challenge and to enhance the low-fare Southwest brand,” Mr Kelly told analysts.
Analysts say Southwest has to decide which elements of its competition it should follow. There are the ultra-low-cost carriers like Spirit Airlines Inc. and newcomer Skybus Airlines Inc. Higher-amenity low-cost carriers like JetBlue Airways Corp. and Virgin America also offer models.
The numbers show Southwest is becoming more like its competitors, paying more for fuel and pilots, cutting employees and slowing growth.
Report by David Wilkening
David
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