Kelleher, flamboyant though he may be, is an innately cautious businessman. When Southwest decides to open a route, it does so only after careful consideration. And then it moves with considerable force.
The airline immediately attacks with many flights, to provide timely, frequent service. "That gives the customer a lot of options and spreads our fixed costs over more seats," explains Barron. With Southwest, a passenger can simply go to the airport, buy a cheap ticket, and get on the next flight out, which he or she knows is often not more than an hour away. Each day Southwest flies 78 times between Dallas and Houston, 46 times between Phoenix and Los Angeles, 34 times between Las Vegas and Phoenix. At Southwest the average number of flights per gate each day is 10.5. The industry average is less than half of that -- 4.5.
Such a high level of frequency yields what Barron calls "critical mass." Customers come to see Southwest, suddenly omnipresent (and so affordable), as the airline of choice. Under the pressure, competitors wilt. Two casualties, recently gone bankrupt, are America West and Midway, which sustained mortal wounds when Southwest attacked them at their very hubs, Phoenix's Sky Harbor International Airport and Chicago's Midway Airport, respectively.
Southwest's low fares and high frequency might make it appear as though the airline were dumping airline seats on the market. It isn't; it makes money on a route from day one. On a typical day, its planes are in the air 11 hours a day, versus an industry average of 8 hours. That comparison is particularly noteworthy given that Southwest's flights are the shortest of any major carrier. With such a high utilization of its costliest assets -- planes -- the airline need only achieve a load factor (that is, the number of paying passengers per total number of seats) of 55% to break even.
In 1990 Southwest's cost per available-seat-mile -- a major industry yardstick -- was the industry's lowest, 6.5¢. (American's was 9¢, USAir's 15¢.) Again, that number takes on greater importance when you consider that because Southwest planes are taking off and landing more often than those of other airlines, the rate of fuel consumption is higher and the number of landing fees it must pay is greater.
How, then, does Southwest do it? First, its short-haul, frequent point-to-point flights lend themselves to reliable, no-frills service. Second, Southwest flies three versions of only one type of aircraft, the Boeing 737. That standardization of service and product yields savings in everything from fuel costs, to training flight crews, to the stocking of spare parts. (Southwest's fleet is also the youngest, most fuel-efficient pure jet fleet in the country.) Third, says Barron, "Our employees bust their butts out there."
"When that plane hits the ground, there are 40 to 50 things that have to happen in 15 minutes," says Jim Wimberly. "It's almost like a ballet." Flexibility, responsiveness, and initiative typify the Southwest culture -- and reinforce its strategy. Wimberly offers this example: Say a nearly full, "buttoned-up" plane is pulling away from the ramp when three faithful frequent fliers run up at the last moment. Should the plane turn back? "Well, our policy is, we have no policy. It's up to the person there on the ground," says Wimberly. "Everything we do is like the old Moody Blues song, 'It's a Question of Balance.' "
At most Southwest ticket counters, there are now boxy, nondescript automatic ticket machines that will take a credit card and dispense a ticket in just 20 seconds. These marvels were not produced by IBM, working under a two-year, multimillion-dollar contract. Southwest employees built them in their spare time, using off-the-shelf computer parts. "The machine was thought up by a bunch of our guys in a bar one night in Denver," says Audy Donelson, Southwest's station manager at Dallas's Love Field. A similar bootstrap effort is now under way to build PCs at corporate headquarters. Worker motivation at Southwest has its counterpart in a strong management focus. "The hardest thing in business is to stay true to your niche," says Don Valentine, who says the airline is committed to its short-haul, point-to-point strategy -- unlike its foundering competitors. "Their focus is global. Ours is the neighborhood."
"We don't get greedy," says Barron, echoing Valentine. The industry, he notes, is littered with wrecks of companies that did just fine shuttling between Dayton and Detroit, but when that came to seem mighty unglamorous, they put out fleets of 747s heading for London and Honolulu. "Suddenly, they were competing with big people who knew what they were doing," says Barron. "They got their brains beat out." Southwest just wants the neighborhood. It'll take Lubbock to Little Rock any old time.
And all Kelleher wants to do is increase the number of Southwest's seats by 15% each year -- and zealously watch his costs. The rest should then fall into place.
* * *
To say the airline industry is one that is constantly in flux is an understatement. Half the U.S. fleet flies under a cloud of bankruptcy, scrambling for advantage -- and survival. High debt and the specter of soaring energy costs loom persistently over the business like twin swords of Damocles.
Kelleher -- whose airline makes 1,200 flights a day -- isn't daunted. In fact, he warms to this state of affairs. "You become used to a life of quick change. This is an operating business. There's nothing passive about it when your principal assets are moving at 540 miles an hour."
In fact, Kelleher roundly fears the absence of change, the lulling sense of calm that overtakes "successful" companies. "Our job is to never lose focus on keeping our costs low and to never suffer an excess of hubris so we take on too much debt." He adds a factual postscript to that abstract thought. In 1989 Southwest enjoyed a record second quarter. Kelleher immediately circulated a cost-cutting memo, warning that a recession was nigh. "When you think you've got it all figured out, then you're probably already heading downhill."
* * *
FINANCIALS
($ in thousands)
Year ending 12/31/90 12/31/89 12/31/88
Employees 8,620 7,760 6,467
Net sales $1,186,759 $1,015,052 $860,434
Pretax income $74,753 $110,982 $85,360
Total assets $1,471,138 $1,415,096 $1,308,389
Net owners' equity $604,851 $587,316 $567,375
