Weather | Sports | Forums | Comics | Classifieds | Calendar | Movies
Southwest Airlines hasn't strayed far from its original business plan: make money by selling cheap tickets and keeping a tight rein on expenses. That helped it grow to become Tampa International Airport's largest carrier in August. But with air travel hit hard by last month's terrorist attacks, can it avoid layoffs among its loyal employees?
By STEVE HUETTEL
© St. Petersburg Times, published October 1, 2001
After Southwest Airlines officials toasted the company's 30th birthday in June, the celebration quickly turned sober.
Pilots were agitating for a big raise that would drive up costs. Southwest was losing ground on key performance measures, such as on-time flights and least bags lost.
And legendary chief executive Herbert Kelleher, a hard-partying, wise-cracking icon, was retiring from day-to-day operations.
Now those seem like the good old days.
Like every other airline, Southwest has experienced a sharp drop in passengers since the Sept. 11 terrorist attacks on New York's World Trade Center and the Pentagon in Washington.
Traffic is down dramatically and the Dallas airline is losing up to $5-million a day. Tighter security at the nation's airports could slow Southwest's record turnaround times, putting a bigger dent in profits. After 28 years of making money, Southwest officials concede that making money in the fourth quarter this year is unlikely.
But Southwest, unlike other carriers, is armed with lots of cash and runs the leanest operation in the business. Beyond that, it has a remarkably loyal cadre of employees who are helping management avoid cutbacks.
At Tampa International Airport, for instance, Southwest employees are sweeping floors and emptying the trash. Across the company, employees are volunteering to work for free for as many as four days in November and December. They are determined to help avoid layoffs.
"It's never happened before and everyone's nervous," said Gary Shults, head of the union that represents 5,500 Southwest ramp workers. "It's like Aunt Martha's in the hospital and right on the edge."
Most airline experts and stock market analysts are betting Southwest will end up stronger once the crisis is over.
"They've got a very good chance of flying through this and coming out ahead," said Morten Beyer of Morten Beyer & Agnew, an airline consulting company in Arlington, Va. "They react so positively with the flag and country while the rest are hiding in the hovels."
Kelleher, a San Antonio, Texas, lawyer, and a client, Rollin King, started the airline in 1971 with three planes flying between Dallas, Houston and San Antonio. Competitors who failed to block its launch in court tried to squash Southwest in brutal fare wars.
But Southwest made money selling cheap tickets by keeping a tight rein on expenses. For instance, the airline flew only Boeing 737s, keeping down maintenance and training costs.
Southwest slowly branched into California and the Midwest. It touched down in Florida in 1996, using the Sunshine State to expand up the East Coast.
A master storyteller whose taste for Wild Turkey bourbon and Merit cigarettes are legendary, Kelleher became a media star as Southwest grew from a regional to a national carrier.
He posed for publicity shots dressed as Elvis and arm-wrestled a businessman in a Dallas arena for rights to an advertising slogan. Southwest pilots gave him a custom Harley-Davidson motorcycle at the company's 1994 Annual Chili Cookoff.
Now Southwest is the nation's No. 7 airline, with more than 31,000 employees and a fleet of 358 Boeing 737s. The airline will add its 58th destination, Norfolk, Va., on Sunday. It earned $625-million last year on operating revenue of $5.6-billion.
Southwest hasn't strayed far from the original business plan. Its cost to fly one airline seat a mile was 7.7 cents last year, nearly 30 percent below the industry average of 9.9 cents, airline consultant Beyer said.
Beyond the numbers, many credit success to the corporate focus on employees and teamwork.
Workers get company birthday cards and sympathy letters signed by Kelleher, chief executive Jim Parker and president Colleen Barrett. An employee's face is always on the cover of Southwest's flight schedule. Halloween is a company-sanctioned event, with contests for best costumes and decorating airport gates.
"The core values of the company are cost control, efficiency and employee relations," said Gary Barron, who retired in 1999 as Southwest's executive vice president for operations. "And I don't think one is any more important than the other."
Succession questions lingered for years, largely because Kelleher, now 70, never slowed down and successfully battled prostate cancer.
When Kelleher decided to retire, Southwest directors briefly considered looking outside the company to replace him.
Barron says Kelleher called on a complementary pair for the top two jobs. Parker, a tough lawyer and fast learner. And Barrett, the detail-oriented keeper of the culture.
Both go way back with Kelleher and Southwest. A young assistant Texas attorney general, Parker found himself across from Kelleher on a case about some bad University of Houston investments in 1978. Kelleher thought enough of Parker to offer Parker a job with his law firm, which handled much of Southwest's legal work.
After becoming the airline's chief executive, Kelleher brought Parker in as general counsel.
"(Parker) seems very laid back, easy-going," says Barron, also a law partner of Kelleher before joining Southwest. "But in a courtroom setting, he's very tough and aggressive. Underneath, there's a trial lawyer and the mentality of a trial lawyer."
Barrett's ties to Kelleher predate Southwest.
As a 23-year-old mother, she followed her Air Force husband to San Antonio where she worked as Kelleher's legal secretary.
By the time Kelleher left to run Southwest, they were an inseparable team. He loves the limelight, she submits to photos only under duress. He dreams up grand strategies, she figures out how to carry them out.
Kelleher is famous for shooting the breeze for hours on end. As keeper of his schedule, Barrett plays the den mother who breaks up the fun. His old CEO office at Dallas' Love Field had a back door where Kelleher slipped out to chat with employees. Barrett had it nailed shut.
But her real preoccupation is nurturing Southwest's culture. The key to the airline's success, she says, is keeping everyone focused on treating others as they would like to be treated.
"If you're treating your employees right . . . there's a far better chance they're going to be happy," Barrett says. "If they follow the Golden Rule, they'll treat passengers right and deliver the product. If the passengers are happy, the company will be financially successful and shareholders will be happy."
Parker and Barrett were already tweaking Southwest's operations this summer.
In late 2000 and early this year, only about three out of four Southwest flights arrived on time, defined by the Department of Transportation as less than 15 minutes behind schedule. That ranked Southwest an uncharacteristicly low No. 4 among the biggest carriers.
Southwest blamed congested airports and airspace. But because planes waiting for customers on connecting flights were wrecking schedules, the airline quit selling tickets that included more than two stops, Barrett said. Southwest also added time to some tightly scheduled flights.
When DOT statistics for June were released, Southwest was No. 1 for on-time performance.
The airline kept to growing capacity at a healthy 10-percent clip and earned $175.6-million for the quarter ending June 30. Continental, with $24-million in earnings, was the only other profitable major carrier in a business hurt by weak business travel and high fuel prices.
On Sept. 11, the airline industry went into a tailspin. All air travel was suspended after hijackers slammed planes into the World Trade Center, the Pentagon and a field in Pennsylvania.
Airlines lost billions of dollars when the government briefly grounded their fleets and millions of nervous passengers canceled or postponed trips.
Since then, Southwest has been the only major carrier to attempt to fly the same number of flights as before the attack.
Wall Street analysts and airline consultants have wondered how many of the passengers who flew Southwest's short-haul flights will drive instead of cooling their heels at the airport as security tightens up.
"Am I going to wait two hours to fly from Los Angeles to Las Vegas? I don't think so," said Michael Boyd, an airline consultant in Evergreen, Colo.
Southwest hasn't seen evidence of that yet, said Gary Kelly, the airline's finance chief. The drop in passenger loads on short flights is about the same as those on longer trips, he said.
Harder to gauge is whether delays getting passengers and crews through security checks will foul up Southwest's tightly orchestrated schedules.
Southwest tries to unload passengers, bags, then refuel and reload in 20 minutes. The fast turnarounds help Southwest get the most use out of its jets and leased airport gates. Southwest jets are flying more than 11 hours a day, about 45 minutes more than the industry average.
So far, Kelly says, the additional luggage and handheld metal detector searches haven't thrown Southwest off schedule.
"Waits at the ticket counter take minutes, not hours," he said. "But clearly as traffic picks up, it will take longer to process those lines."
At Tampa International, supervisors are postponing paperwork to help check in passengers at ticket counters and gates. Agents are at the counters by 5:15 a.m., 45 minutes earlier than usual, to check in people arriving two hours before their scheduled departures.
Other airlines are struggling and resorting to massive layoffs. Southwest's survival strategy doesn't include job cuts, something Kelleher preached against. In an interview published in May, Kelleher told Fortune magazine: "Nothing kills your company's culture like layoffs," he said. "We could have furloughed people at various times . . . but I always thought that was shortsighted."
But management acknowledges they might have to change their policy if business doesn't improve. "If we continue to have very weak traffic, we'll have to think about downsizing the airline," said Kelly, Southwest's chief financial officer. "It's not that we can't deal with layoffs if we have to. But it's the last thing we want to consider, not the first thing."
The company is losing up to $5-million a day but has $1.4-billion in cash and available credit, Kelly said. Southwest also could borrow money against 206 jets worth $5-billion, he said.
The airline isn't saying how full its planes are flying. A recorded message for employees on Sept. 18 said paying passengers filled an anemic 28 percent of its seats, less than half the loads Southwest carried during the first six months of this year.
The numbers have slowly improved, Kelly said. Southwest was shooting for a profitable third quarter, which ended Sunday. Making money in the fourth quarter is now "a tough goal," he said.
Southwest is aggressively wooing customers. The airline launched a national ad campaign and a Web fare sale in the past two weeks. Southwest was the first carrier to resume television ads following the terrorist attacks, and the emotive spots link commercial aviation to America's resolve to recover from the attacks.
At Tampa International, where Southwest became the largest airline in August, gate agents hand out stickers with an American flag and the message: Keep America Flying. I Flew Southwest Airlines Today.
Meanwhile, Southwest employees are pitching in to save money. They're sweeping floors and emptying trash in the cargo and provisioning areas to replace hired cleaning services, said Karen Dove, Southwest's station manager at TIA. Employees are donating up to 16 hours of pay a month to bolster the bottom line.
Employees post notes on a bulletin board with the heading: How Can U Save SWA $5.00 A Day? No cost saving is considered too small.
"I can bring my cup to work and use it instead of the (company) plastic cups."
"Try to use returned tix jackets that customers bring in."
Among the biggest supporters are alumni of failed airlines, such as Southwest administrative coordinator Sharon Guadagno of Safety Harbor.
She worked 20 years for Eastern Airlines and was two years from retirement as a customer service agent in Sarasota when the carrier folded in 1991. Guadagno joined KIWI International Airlines, which went belly-up two years ago.
"It's complete devastation," she said. "You don't know what else you can do. It's all I'd done for 20 years. This is the first time I've been able to know I have a job. I can sit back and relax."
- Researcher John Martin contributed to this report.