Just Plane Profitable : No-Frills Southwest Airlines Prospers While Others Nose-Dive

Don’t expect anything fancy, said Southwest Airlines passenger Richard Babbitt.

For one thing, forget about reserving a favorite window or aisle seat in advance--it’s first come, first seated. The guy walking down the aisle in a polo-style shirt, shorts and tennis shoes could very well be the flight attendant. The in-flight meal consists of a beverage, a bag of peanuts and--on longer flights--cookies.

“You are not in the lap of luxury. But the price is right, and they are on time,” said Babbitt, a salesman who was flying from Burbank to Las Vegas--a flight that costs $59 one way, $39 at a discount. “It’s hard to beat.”

While Southwest flight attendants pass out peanuts, the Dallas-based airline produces financial results that are the envy of the troubled airline industry.

The casual attitude of Southwest employees and the antics of Chairman Herbert D. Kelleher--who has dressed in drag and arm-wrestled executives--masks a conservative, methodical strategy that has made Southwest the largest player in nearly every market it serves. Earlier this year, Southwest surpassed United Airlines to become the No. 1 carrier within California.

“They didn’t change their prices. They didn’t change at all. They just grew,” said Hal Sirkin, a transportation analyst at Boston Consulting Group. “There is a fear (among major carriers) that this thing will get bigger and bigger.”

In California, Southwest’s low fares--none higher than $69 within the state--have sent passenger traffic soaring and competitors’ prices plummeting.

Six months after Southwest began its Burbank-Sacramento service, traffic on the route rose 150% while the average fare dropped about 60%.

From Ontario, some San Francisco-bound business travelers will catch the $69 Southwest flight to Oakland airport instead of paying United $129 to fly to more convenient San Francisco International Airport, said travel agency owner Jim M. Roberts.

“It’s a bus with wings,” said Roberts. “But for the price, customers don’t mind at all.”

Southwest is not for everybody. It lacks the coast-to-coast and international networks of other major airlines. And many passengers accustomed to the formality and services available at bigger carriers are put off by Southwest’s Spartan but laid-back style. But Southwest has clearly found a niche.

“We don’t try to market to the entire world,” said its marketing vice president, Donald G. Valentine. “If people are looking for a mint on the pillow, they are not for us.”

Even with more than $1.3 billion in annual revenue last year, Southwest remains a relatively small player.

The airline claimed less than 3% of the nation’s passenger traffic in September, versus 20% for industry leader American Airlines, according to Aviation Daily. Its third-quarter profit of about $27 million would buy only one Boeing 737 jet for the Southwest fleet.

But the ability of the 20-year-old carrier to generate profit--albeit at lower levels--during the industry’s bleakest period has attracted attention and praise from larger rivals. American, for example, says it is looking at offering simplified service a la Southwest in some markets.

The industry turbulence triggered by the recession and Gulf War has actually worked to the advantage of Southwest in some cases.

In the Midwest, the carrier swooped into Chicago after the failure of Midway Airlines last fall, taking over precious gates and terminal space.

On the West Coast, USAir’s retreat from the competitive California skies last summer gave Southwest the room to double its share of the market within a year. At the end of June, Southwest carried more than 30% of airline passengers within California.

“We are fairly conservative in good times. When bad times come along, it gives us the ability and the opportunity to expand when other airlines are contracting,” said Kelleher. Once the economy picks up, Kelleher expects Southwest to slow down--growing 10% to 12% next year, versus about 16% in 1992.

Southwest’s operation in Burbank provides an example of the strategy and philosophy that the airline pursues in city after city. Unlike the crowded Los Angeles airport, Burbank has enough gates and freedom for Southwest to operate its high-frequency type of service.

When a gold-and-orange Southwest 737 arrives at the Burbank terminal, ground crews spring into action in a race against the clock. Mobile stairs are rushed to the front and aft of the plane to speed up the departure of passengers.

Workers forgo the mobile conveyor belts to load or unload baggage from the belly of the plane by hand.

After the plane has been readied for departure, the pilot fires up the engines while the aircraft is being towed from the terminal so it can depart immediately once it hits the runway.

“You better be organized or it’s not going to happen,” said Greg Golden, Southwest’s manager at Burbank.

The payoff from this frenzied tarmac ballet is a turnaround--the time between a plane landing and taking off again--that is typically 10 to 15 minutes. A third of what it takes most carriers at larger metropolitan airports, that means major cost savings for Southwest.

Southwest also benefits from flexible union rules, which allow workers to perform more than one task, and from motivated employees.

After touching down at Burbank, flight attendant John Steketee didn’t wait for the cleaners to come through the plane. He began sweeping up peanuts from the carpet himself.

“You just want to do it because you are part of something and want to make it work,” said Steketee, an 11-year Southwest veteran.

From Burbank, Southwest flies to Sacramento, Oakland, Las Vegas, Phoenix and other cities where it can generate the volume to sustain at least three flights a day. Just as telling is where Southwest doesn’t fly in California, such as San Jose, where American Airlines dominates traffic.

“That’s American’s sandbox,” said Edward Shellswell-White, Southwest’s Los Angeles marketing manager. “They can bury us,” he said, if threatened.

Perhaps the biggest threat for Southwest is that it will stray from its low-cost, low-fare strategy and grow too fast, say industry analysts.

Pacific Southwest Airlines and Air Cal--pioneers of high-frequency, low-fare service in the West--fell on hard times after letting costs get out of hand. Low-fare People’s Express expanded too quickly and added too much debt before failing.

One way of avoiding similar fates is by continuing to think and act like a small, cost-conscious carrier said Kelleher. “That way, we will always get bigger.”

The Rise of Southwest Southwest Airlines has overtaken United Airlines as the largest passenger airline within California Second-Quarter 1992 Market Share Southwest 30/7% United 27.3% American 19.3% USAir 8.0% Delta 4.2% Others 10.5% Second-Quarter 1991 Market Share Southwest 15.6% United 34.2% American 17.4% USAir 13.4% Delta 4.8% Others 14.6%