A Southwest Airlines Turnaround Plan?

I know, it sounds funny, right? You never think of Southwest needing a turnaround plan, but yesterday that appears to be exactly what they presented to Wall Street. Why? Well, in the past they were able to hide some of their problems thanks to their excellent fuel hedges. But as those expire, they’ve seen their profits plunge.

07_06_28 wnprofittrendsOn the left, you’ll see a chart from today’s presentation to illustrate the problem. See the whole presentation here (pdf).

Now don’t worry, Southwest-lovers. Even though that drop looks nasty, they still made $93m last quarter, something most airlines would drool over, but it’s not as good as it used to be and Southwest needs to fix things so they stop leaving money on the table.

So what exactly are they doing?

First, as I noted last week, they trimmed their schedule up. Robert Stack did a great job of finding almost all of the routes that were disappearing. He only missed the ever-popular Midland/Odessa to El Paso route. (Looks like a long 292 mile drive through nothingness for the 2 people who used to fly that route.)

But of course, with schedule cuts, they have to put those planes somewhere. Yesterday, we found out where. The airline has decided to bump up service in both Denver and New Orleans with these extra planes. New Orleans residents will be thrilled to get some service back. Southwest has taken an awfully long time to bring their schedule back up there since Katrina. The city will see the return of three daily flights to Birmingham (Alabama) along with an extra flight to Dallas/Love, Las Vegas, and Orlando. Houston/Hobby will get two more flights.

Denver is a different story. That’s a fairly new market for them and there had been rumors that flights hadn’t been doing as well as they’d hoped. Well, they’re definitely throwing everything in there to see if it will stick. The city will get new flights to Albuquerque, Austin, Seattle, Oklahoma City, and Amarillo. Wait . . . Oklahoma City and Amarillo? Ah yes. Thanks to the wonders of the remains of the Wright Amendment, they’re using those flights to be the single stop without plane change service to Dallas/Love. And by the way, Salt Lake and Nashville will each get one more flight on top of what they already have.

There are other increases and decreases as well. If you’d like to dig in and see all the schedule changes for this year, Southwest provided this handy PDF with all the changes. Going forward, they’re slowing long term growth too. Next year instead of taking 34 planes, they’ll only increase their fleet by 19. That may mean fewer deliveries or they may retire/return some older aircraft.

Beyond schedule, what else are they doing?

This press release sums it up broadly, but it’s very vague. I really want to know more.

The first thing that jumped out at me was “Unveil a new boarding/seating method.” Booooooo! I like the cattle car boarding (demonstrated at right, thanks to Leia). It certainly helped America West create the best commercial they’ve ever aired (here (wmv)). But what I really like is that no matter when I book my ticket, I know that I can logon 24 hours before and get an A boarding pass. With an A, I can get my window even if I’m the last one on in that group, and that’s great.

Business travelers never have to worry about paying a ton at the last minute and getting stuck in the middle. It’s the great equalizer. Of course, we don’t know what they’re thinking about doing here, but I’m hoping it’s not too bad.

They also say they’re going to “Enhance its low-fare structure.” Riiiiiight. The goal is to make it more business-traveler friendly, so maybe more refundable fares? What scares me is that I foresee a change fee being implemented. Probably only $25, but that would significantly change the Southwest experience. Any time I see the word “enhance,” alarm bells start going off in my head.

UPDATE 6/28 @ 941a: This AdWeek article describes one of the ads that Southwest is about to roll out. I quote, “two businessmen trapped in a traffic jam offer the cab driver money to get them to the airport on time. After a careening around various urban perils, one asks the other, ‘Is this worth it?’ His partner replies, ‘It’s still cheaper than a change fee if we miss our flight.'” So it sounds like they’re planning to remain change fee-free!

Oh, and they want to “Enhance its Rapid Rewards frequent flyer program.” Again, I get scared. They did customer research that said people wanted a more competitive program. I’m sure that means more destination options. People like to use their miles to go internationally. So that would be great if they do something along those lines, but as usual it will also end up coming with some more restrictions, I’m sure. The name of the game is increasing revenues, so . . . .

To sum it up, the airline wants to find a way to generate more money without destroying what Southwest stands for, and that’s not easy. Catering more to business travelers can help. So will sellling ancillary services like onboard internet and even *gasp* buy on board food products. But they’re going to become a different kind of airline as they continue to find ways to grow. We don’t know much yet, but we can only cross our fingers and hope they don’t blow it.


4 Responses to A Southwest Airlines Turnaround Plan?

  1. Dan Hill says:

    It’s interesting if you look at the experience of Virgin Blue in Australia. In many ways they started out following a Southwest model (although they’ve always allocated seats) but over time have had to refine their offering to capture more of the high yield travellers. They now talk about being a “next generation airline” rather than a “low cost airline”. They still have a strong cost control culture but are focussing on delivering maximum value to customers at a given cost. What will be very interesting is when they start trans-pacific operations (2008?) and need to adjust their model to 12 hour plus flights.

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  3. Southwest Airlines have the combined market capitalization of all other US-based airlines put together. I think they just need an aggressive marketing plan.

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