Southwest Airlines. It's name is probably the most respected among US airlines. From being named one of the top
companies to work for year in and year out by Business Week, to being ranked 21st in a list of the 60 most visible US corporations , Southwest seems to just
win accolade after accolade. Even customer service problems couldn't stop this juggernaut. That being said, I'd like to take a look at what makes Southwest Airlines different.
© http://www.flickr.com/photos/stuseeger/3806880544/
1. Business Model- I have said this before and I probably will say it again, but Southwest's business model is far different from those of legacy carriers. As a low-cost carrier, Southwest Airlines relies on large volumes of passengers to make a profit. While a legacy carrier could make routes to airports such as Peoria and Allentown work, Southwest only operates from mid-size to large cities (Las Vegas, Los Angeles), or small cities close to larger ones (ie: Manchester, New Hampshire). The other major facet, is that they try to serve the smaller airports in towns, which are usually more convenient than their larger counterparts ( Dallas Love and Houston Hobby vs. Dallas-Fort Worth and Houston Intercontinental). The second idea behind their business model is the idea of no frills service. The idea behind this is to strip away everything nonessential to air transport, thereby lowering the cost. An example is the fact that there is no inflight entertainment on Southwest. Also, until previously, the airline didn't allow passengers to connect through hubs, which meant you could fly from Point A to Point B only if Southwest operated the route.
2. Low Costs- Southwest is sucessful at its model precisely because it has low costs. Southwest doesn't have the large pension obligations that the legacy carriers do. And their route network is conducive to lower costs. How so? Well Southwest Airlines only serves 68 airports, major legacies like United and Delta serve upwards of 200. Every airport that an airline serves adds cost, because to serve an airport, you have to have employees there; baggage handlers, gate staff, check in staff, etc. By having a small number of airports, but large quantities of routes between them, a lot of these costs can be rolled over from flight to flights. Southwest was also smart enough to hedge fuel in 2008, which though it may not seem sound now, sets them up well for the future of high oil prices.
The second thing that keeps its costs down are productive employees. Though Southwest pays relatively higher wages to its workers, it also gets a lot more out of those workers. Take their flight attendants for example. Their average annual compensation of $53,027 was the highest among the 12 major US Airlines. But did you know that the average Southwest employee is more productive than his or her lower paid counterpart at Continental, American, or United. And those higher wages probably help improve the service quality of their flight attendants.
© http://www.flickr.com/photos/planephotoman/264321523/
So tune in tomorrow for Part 2
Chart A- refer to this to see how productive workers are. The unit of measure is Block Hour Cost- or BHC, which is basically how much on average the airline paid a flight attendant for work done from the moment the aircraft door closes at departure of a revenue flight until the moment the aircraft door opens at the arrival gate following its landing.
All data taken from The Airline Data Project- but number crunching done by yours truly:
1. Frontier 26.98565007
2. jetBlue 37.4818347
3. AirTran 42.10034014
4. Allegiant 45.02502945
5. Midwest 57.24297189
6. Alaska 63.17175018
7. Delta 65.53078556
8. US Airways 69.67719298
9. Southwest 70.03037507
10. Hawaiian 79.64933993
11. United 80.21382894
12. Continental 87.54639543
13. American 96.46511628