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Southwest still flying high

By STEVE HUETTEL, Times Staff Writer
© St. Petersburg Times
published February 24, 2002

Southwest Airlines has always taken pride in zigging when the rest of the airline industry zags. The strategy paid off after Sept. 11: Southwest maintained its full schedule, didn't lay off an employee and still earned a profit for the final two quarters and the year.

With the airline's new chief executive and president busy keeping Southwest flying profitably after the terrorist attacks, chief financial officer Gary Kelly filled in as the top corporate voice to Wall Street and the public.

Kelly talked about Southwest, which was the No. 3 airline at Tampa International Airport in 2001 (and is likely to claim the top spot this year), with the St. Petersburg Times this month while attending a transportation conference in Venice.

He discussed fare sales, how the airline will tackle long lines at the airport and the imminent demise of that familiar symbol of Southwest: the plastic boarding card.

* * *

Q. Congratulations on Southwest's 19th-consecutive profitable year and its fourth-quarter profit. Can you do it again this quarter?

Kelly: It's hard to say because of the (travel) patterns we've seen so far. At peak travel periods, the demand is there. When you don't have the urgency to travel, the demand has been quite slack.

It's a function of business travel being so weak. Our first-quarter prospects are competely dependent on the strength of spring break travel in March. Bookings for March look pretty good, but we're still not at all certain if we'll make a profit.

* * *

Q. Does that mean customers will keep seeing fare sales, especially Internet deals?

Kelly: There will probably be fewer seats available at the sale price than in the fourth quarter. But it's still a weak revenue environment, which suggests we'll still be aggressive with pricing. That suits us fine. We're a low-fare carrier and want to protect our low-fare brand. This is where having a low-cost structure becomes a huge competitive advantage.

* * *

Q. What's your best guess for when the business will turn around?

Kelly: I think the stage is set for an economic recovery. We've got low interest rates, low inflation, low energy prices. The layoffs are trailing off. There are a lot of positive signs the economy can turn around. It's possible we could see a recovery here in the first half of the year.

We've got to be cautious still in the airline industry, though, because we're a lagging effect in the economy. As the economy slows, our business is one of the last to show the effects. Likewise, when a recovery begins we're also a lagging recovering industry. If you've just laid off employees at the end of last year, you're not going to snap back in the second quarter of this year and rehire all the employees you just laid off. That will take time to rebuild, and travel is the same way.

* * *

Q. What has been the biggest impact of beefed-up airport security on Southwest?

Kelly: It's made a very dramatic change for our customers at airports. Most notably, very long lines at times. Most of the times, there aren't long lines. But there's just uncertainty of when you show up what you're going to face.

That is our immediate challenge and goal: to dramatically improve the airport experience. We can add personnel, but that's not the total fix. We need to add some security equipment. We can add other technology to facilitate bag handling and boarding. We probably need more ticket counter space. We're going to rethink our processes, tools and equipment we use.

* * *

Q. One casualty is a longtime icon for Southwest: the plastic boarding card. When will the cards go away and why?

Kelly: What we've targeted is by this summer to begin using automated boarding passes. It gives us the option of issuing them at any number of points. We can issue the automated boarding passes at the ticket counter, the gate and other locations.

It's purely a matter of trying to reduce the number of lines people have to stand in. If we've already touched you once at curbside to check your bag and check you in, why not give you a boarding pass right there?

It's amazing how identified we are with that plastic boarding pass. A lot of people want them as keepsakes, to put them on their walls. I'm sure we'll have some kind of retirement party for them.

* * *

Q. Southwest was the only major airline not to cut its schedule after Sept. 11 and is now adding jets and flights. You had been adding two or three new cities a year. Do you expect to start flying into a new city this year or just add flights in places where competitors cut service, such as Baltimore?

Kelly: Even with increasing (the airliner fleet) by eight, I don't think we'll add a new city. In this environment, it's easier on the balance sheet and easier on cost structure if we just add frequencies.

It takes quite a bit of effort to add a new city. As we try to get profits back up to year 2000 levels, it's wiser to grow a little more cautiously. It's so obvious that with those reductions (by competitors), we still have opportunities right where our route system is now.

I think we'll also pick up market share because we didn't disrupt our schedule and cut flights. The sheer number of frequencies and options available to customers is an aspect of our customer service.


POSITION: Executive vice president and chief financial officer of Southwest Airlines.

AGE: 46

EXPERIENCE: Vice president of finance and CFO of Southwest; audit manager for Arthur Young & Co. in Dallas; mainframe software development worker and controller for Systems Center Inc. in Irving, Texas.


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