Southwest Airlines CEO Gary Kelly shoots a t-shirt toward employees during an event at Love Field in Dallas on Sept. 8. Southwest has reported 41 straight years of profit and has never laid off employees.LM Otero/The Associated Press
Gary Kelly will be permitted to do something on Oct. 13 that he has been banned from doing since he joined Southwest Airlines Co. in 1986. The chief executive officer of Southwest will be able to fly non-stop on one of his airline's Boeing 737s from its base at Love Field in Dallas to Las Vegas or Denver or Orlando, Fla.
That's because a 1979 regulation that has severely restricted Southwest's flights out of Love Field ends next month.
The law, known as the Wright Amendment, was put in place to protect what was then the new Dallas-Fort Worth International Airport and airlines operating out of it. Southwest was permitted to fly non-stop only within Texas and a handful of other states.
So on Oct. 12, Mr. Kelly and any travellers heading from Love Field to Las Vegas have a choice of 15 flights, each of which will stop in a smaller Texas city such as Lubbock or Odessa, or Albuquerque, N.M., or somewhere else before landing in Sin City. A day later, three of those daily flights out of Love Field will be non-stop.
The expiration of the Wright Amendment is such a momentous event in the airline's history that a clock at its headquarters next to Love Field is counting down the days to when the restrictions end.
Despite the handcuffs of the Wright Amendment, Southwest has grown into a massive change agent and disruptive force in the U.S. airline industry.
It started with a sketch on a napkin that outlined a triangle of flights between Dallas, San Antonio and Houston. Since beginning those flights in 1971, the airline has grown to a point where it now carries the largest number of U.S. passengers domestically on 3,600 flights a day, has reported 41 straight years of profit and has never laid off employees.
In the same period, the carcasses of deceased airlines piled up, while those that survived and now rank with Southwest in the big four are the products of chapter 11 bankruptcy filings and mega-mergers. In some of those mergers, both partners went through chapter 11 filings.
"The world has changed so much for the airline industry since 2001," Mr. Kelly told reporters at Southwest's sprawling campus near Love Field last week.
The world is also changing for Southwest, which began its first international flights earlier this year – including service between Baltimore-Washington International Airport and San Jose, Costa Rica, which was announced on Friday – and is sending strong signals that it is preparing to enter the Canadian market.
Southwest's success is based on a few core principles:
- A relentless focus on keeping costs low;
- Use of a single type of airplane, the Boeing 737;
- Flights between city pairs or from point to point, rather than using a hub and spoke model;
- Maintaining a unique corporate culture with a heavy emphasis on fun.
"This is an airline that has made money in an industry that has had extraordinary volatility in terms of ups and downs and losses industry-wide that in some three or four-year periods have been in the $10- to $20-to $30-billion (U.S.) range," said Jeffrey Rayport, a senior lecturer at the Harvard School of Business.
Low costs underpin the entire operation, Mr. Kelly said.
"We want to be the low-fare airline. We want to be the low-cost producer," he said. "There's one airline whose costs are about 8 per cent lower than ours and we don't like that," he said.
That would be Spirit Airlines Inc., which is based in Florida. JetBlue Airways Corp., another low-cost carrier, is trying to mimic Southwest's success.
Low costs start with the fleet. Using one type of aircraft means pilots, maintenance staff and flight attendants can be trained once, instead of three, four or more times, which airlines that use several types of planes must do.
Southwest trains technicians on the Boeing avionics systems for about two weeks and they take refresher courses annually.
"It does streamline our training from a cost standpoint," said Elizabeth Bryant, vice-president of Southwestern Airlines University.
One fleet type also means maintenance hangars need to be stocked with spare parts for just one set of planes and engines, freeing up capital to be used elsewhere.
Flying point to point meant Southwest could make use of smaller airports such as Midway International Airport in Chicago, which is dwarfed by the larger O'Hare International with all its international connections.
Utilizing a less busy airport means planes arrive more quickly at gates and spend less time on the ground. Southwest's goal for many years was to have a plane arrive at a gate, unload, load again and be heading toward a runway to take off 20 minutes later.
"The famous dictum in the airline industry is that when the planes are sitting on the ground, you're losing money, or you're spending money and when the airplanes are in the air, they are actually making you money," Mr. Rayport said.
The corporate culture was on full display last week when Southwest unveiled a new colour scheme for its planes. That event happened to coincide with the start day for 390 new employees and the weekly party for employees that is held on a deck overlooking Love Field's runways.
But in the midst of record profit, international expansion and a new advertising campaign, there is some turbulence.
Southwest's on-time performance deteriorated from the 80-per-cent level in 2013 to about 70 per cent earlier this year, causing the airline to ease its goal of a 20-minute turnaround time and to redeploy 16 previously idled planes back into the network.
The airline is in a labour dispute with the International Association of Machinists and Aerospace Workers, which represents about 6,000 reservation and passenger service agents. The union sought a mediator last month after two years of negotiations in a battle over moving to variable pay based on profit instead of annual wage increases.
"To continue to grow – even if it's slower growth – Southwest has to start inevitably breaking some of their own rules," said Mr. Rayport.
The airline already has done so. Many of its flights now are three or four times longer than the 65-minute rule the airline began with and fly into and out of such congested airports as Los Angeles International and Hartsfield-Jackson Atlanta International Airport.
But the airline will stick with 737s and not add another fleet type, Mr. Kelly said. Delivery of the next generation of Boeing 737s begins in 2017.