LUV- Southwest Air - has occasionally been mentioned on this thread. here is an update on their situation. LUV declined far less than any of the other airlines after WTC: -
September 24, 2001
Southwest Airlines' Formula for Success
To Be Tested in a More Cautious Market
By MELANIE TROTTMAN
DALLAS -- Southwest Airlines is trying to fly through the storm.
The nation's premier low-fare airline is the only carrier that didn't cut its capacity last week because of the huge drop-off in air travel, and the only big airline that hasn't said it will have to lay off employees. Indeed, fast-growing, consistently profitable Southwest has never had an employee layoff in its 30-year history.
Yet the fallout from the Sept. 11 hijackings and terrorist attacks could impact Southwest in a profound way. The airline, the nation's seventh-largest, relies heavily on a formula that squeezes the maximum profit out of its aircraft use: unloading and loading planes in just 20 minutes. Now, new airport security measures threaten to slow down this efficient process that has helped Southwest thrive.
Southwest also faces a threat to its core product: short-haul, point-to-point flights that move travelers quickly to their destinations. About 85% of the airline's flights are less than two hours, or 750 miles. If it takes longer to get through airport lines and security checks, more travelers, especially those skittish about flying, may opt to drive on short trips.
Unyielding, Southwest has continued to fly its full flight schedule of nearly 2,800 flights a day despite the fact that its planes were carrying perhaps only one-third the typical passenger load. The company said the numbers began to inch up in the middle of last week. Still, Southwest says it continues to incur millions of dollars a day in losses in the current conditions.
Last week, the nation's six largest airlines all moved to scale back flight schedules at least 20% and announced more than 70,000 job cuts collectively.
Southwest has halted aircraft deliveries from Boeing Co. and has spoken with the Chicago-based aerospace titan about deferring payment -- a move that indicates the airline is at least putting growth on hold. After a board meeting last Thursday, Chief Financial Officer Gary Kelly said Southwest concluded it, too, might have to make deep scheduling cuts similar to its rivals, probably in October, if loads don't improve. The revised schedule Southwest is considering doesn't demand or suggest layoffs among its 30,000 employees, Mr. Kelly said, because the carrier actually has staffing shortages among certain groups, such as pilots. Still, he couldn't rule out the possibility.
"We have short-term challenges," Mr. Kelly said. "I don't see that we have a long-term challenge here, where fundamentally our business has been changed."
Southwest believes it can handle the new security measures and still get its planes into and out of airports quickly. Since the start of this year, Southwest already had been working to improve its on-time-performance ranking, which dropped to fifth place last year after being first for most of the past decade. To help it improve, the airline added five minutes to turn times in certain cities, in some cases increasing them to 30 minutes. Recently, its performance had improved, and now the carrier believes it has some cushion in its schedule for new procedures.
Moreover, Southwest thinks its customers will continue to fly instead of drive, once confidence in air travel is restored. So far, the airline has seen no difference between passenger loads on short flights compared with long flights, although other airlines say flights under 750 miles are noticeably emptier than longer flights.
Analysts have taken Southwest at its word. UBS Warburg LLC analyst Sam Buttrick upgraded the stock Friday to buy from hold, saying it was attractive again after a 40% decline and citing the company's unequivocal statement that new security procedures aren't impacting aircraft turns. Morgan Stanley analyst Kevin Murphy noted Southwest's low unit costs, or operating expenses for each seat flown one mile, which he estimated at 7.5 cents, compared with the industry average of 9.5 cents. "They were the least impacted in 1991," when the Gulf War hurt bookings, Mr. Murphy said.
See full coverage of the attack's aftermath.
Rival airline executives are more skeptical. Southwest Chairman Herbert D. Kelleher "gets his planes in and out in 15 minutes. Not anymore, you don't," says Continental Airlines Chief Executive Gordon M. Bethune, citing increased security measures.
Southwest's Mr. Kelly wouldn't comment on specifics of the new security requirements on the ramp and the aircraft, but he vehemently maintains that they haven't affected turn times. During the past week, he said, the airline was "able to handle these new security procedures very, very smoothly." |
