When I wrote about the last route announcement which axed more small cities, I listed 8 AirTran cities which I thought should have been concerned about their future. Looks like I was about half right. Here’s a map with all the cities that won’t make the cut.

The Losers
The ones that will be going are Allentown (PA), Harrisburg (PA), Huntsville (AL), Lexington (KY), Sarasota (FL), and Westchester County (NY). The first four were on my list, and I had no doubt at all about Huntsville and Lexington. Allentown and Harrisburg were a mild surprise: I thought one would stick around, especially since Southwest has been getting its clock cleaned in Philly. I figured one of those cities might be a good add to the network, but I didn’t expect to see both. But it’s the last two cities that caught my eye.

Sarasota and Westchester were bigger surprises. Sarasota is a highly seasonal market, so maybe Southwest couldn’t find a way to properly serve it year-round, but I imagine it’s a good market in the winter. It is just 50 miles south of Tampa, so I suppose Southwest can leave it to airlines that are better capable of serving the market.

In Westchester, AirTran only has five flights a day there with two to Atlanta, one to Orlando, and one on the blue hair express down to West Palm Beach. Southwest wouldn’t be able to get more slots there, so it would be tough to run a Southwest-style operation. The model is further challenged by the fact that the airport handles all customer service, so Southwest couldn’t have its own people. (Southwest says that’s not why the airline backed out, but it had to be a factor.) Other airlines will be more than happy to snap up those slots in what is a strong market serving a very rich clientele.

The Winners
But what about the cities that are staying? That’s an interesting story. I said Branson (MO), Pensacola (FL), Portland (ME), and Rochester (NY) should be concerned, but they made the cut. I shouldn’t have been surprised by Branson since Southwest already announced AirTran would start Baltimore flights from there. I’m sure Southwest is getting a hefty subsidy, clearly showing this isn’t your father’s Southwest that only flew to markets that worked on their own. (The same goes for Wichita, which will be keeping service thanks to continuing what appears to be a perpetual subsidy.)

Pensacola surprised me because when it started Panama City service, Southwest agreed to pay a penalty if it started to serve Pensacola because of its proximity. Could the market be so good that it’s worth paying the penalty? Or maybe Southwest renegotiated that deal?

What else is staying? Well, there are the obvious ones. Akron-Canton (OH), Des Moines, Washington/National, and most of the international cities are sticking around. Southwest has already made it clear that these would be staying through various previous route announcements.

Then there are the mid-size cities that Southwest has previously avoided. Charlotte and Memphis are the most notable here. Southwest should serve these cities, though I don’t expect an enormous operation at either, at least not at this point.

That leaves us with Flint (MI), Dayton (OH), Richmond (VA), Key West (FL), and Grand Rapids (MI). These are a mixed bag. Dayton seems to be the closest Southwest wants to get to Cincinnati for now. Grand Rapids and Richmond are decent-sized places that might generate enough demand for a small operation. Flint and Key West are head-scratchers, however.

Flint isn’t very far from Detroit and it’s not exactly an economic powerhouse. Seems like a stretch to me. And Key West . . . if Sarasota can’t survive then I’m surprised Key West can. These just seem like markets that can barely sustain a minimum level of Southwest service, at best.

EVOLVE Seating
And that leads us back to the other big issue recently . . . Southwest and its seating. Last week, Southwest made a big deal about how it was putting new seating into its airplanes. It hailed the change as a “new era of customer comfort and sustainability.” There’s even a name for this change – EVOLVE – and yes, it’s written in all-caps. Give me a break.

I haven’t had the chance to try these seats, but they are thinner, and they use more environmentally-friendly material. They will, however, also recline less than the existing seats, and they’ll be moved closer together – enough to allow another row to be added to the airplanes. I have to reserve judgment on these since I haven’t sat in them to see if they truly are comfortable or not, but the way that Southwest is promoting this as the greatest thing since slice bread certainly is a turn off. And it’s the same strategy Southwest has used for most announcements. (Remember the new Rapid Rewards rollout? Bleh.)

More importantly, however, is that this shows the continued upgauging of Southwest. The 737-700s will now have 143 seats. The airline is focusing its future orders on 737-800s with a lot more seats than that. It has already said it doesn’t see much of a future for the 717. So how is Southwest going to really serve some of these smaller cities with only large-scale airplanes? It seems like there’s a disconnect here.

There’s no question Southwest can adequately serve some of the larger AirTran cities, and it will likely come up with a good model for serving the international destinations as well. But I think Southwest is going to have a tougher time serving some of these smaller cities unless it really decides to shake up the way it operates. I just haven’t seen any kind of indication from the airline that it’s going to do anything radical like that, so we’ll just have to see if some of these smaller cities can actually survive.

[Original EVOLVE seat photo via Southwest Airlines]

What’s most interesting about this? It is truly a rallying cry. It’s a somber message – the good old days are over, and it’s a more level playing field now that the big boys have gone through bankruptcy to lower costs. But it’s clearly a call for Southwest employees to come together.

Now, while our costs are still lower, our advantage has been cut in half. We currently do not have a sufficient cost advantage to stimulate the market because our fares are much closer to our New Airline competitors.

Gary is very clear that costs are king, and Southwest is having trouble in that area when compared to other airlines.

The New Airline industry is profitable. In fact, the New Delta and New United had better profit margins than Southwest in the third quarter, despite the magnificent gains we’ve made over the last four years with our Customer Experience enhancements and our revenues. On that front, we have outperformed all competitors. We have a cost challenge, and it is one that looms large.

Then he zeroed in on how labor is a part of that.

Our labor rates are now, far and away, the highest in the industry. Through bankruptcy, very large New Airlines have emerged with lower rates than us and better productivity. Next to fuel, labor is our highest expenditure. We cant have lower overall operating costs if our labor costs aren’t lower. We cant have lower labor costs if we arent more productive. The good news is that we have a lot of opportunities to improve our productivity, eliminate waste, and preserve our pay rates and benefits for the foreseeable future. Its crucial that we take advantage of those opportunities.

He sets the focus for the airline on four big changes, including one (the new reservation system) that I thought was tabled.

And, it is our People who will continue to transform Southwest with four big initiatives: AirTran, All-New Rapid Rewards, B737-800, and a new reservation system.

But ultimately, it’s going to come down to one thing . . .

Finally, please remember, all the great things our People do will be for naught without low costs. Just ask the old “Legacy” airlines.

Like I said, a very somber note, but one that seems right on the money to me. This ain’t your father’s Southwest. Now the question is . . . what can they actually do about those cost problems? That’s the hard part, because Southwest employees have lived the good life. Sure, they were always happy to trade productivity for higher pay, but how much better can you do with productivity? I’m eagerly watching to see. Read the entire letter below.

—
Gary C. Kelly
Chairman of the Board, President &
Chief Executive Officer
P.O. Box 36611
Dallas, Texas 75235-1611

I am very grateful and very thankful for all of you.

In the Trenches: Executing the Switch – Intuit Small Business Blog
We finally switched hosts, and it’s been great.

Peter Greenberg Worldwide Radio – Peter Greenberg
I was on Peter Greenberg’s radio show talking about mergers, frequent flier programs, etc. It starts at about the 1:29 mark and goes for 10 minutes. This was taped a few weeks ago and just aired over the last weekend. As you can tell at the end, I disagree with Peter a lot on fees.

A guy and his girlfriend were traveling on a flight to Phoenix and it had wifi onboard. The guy went to the Southwest Facebook page and said that a flight attendant onboard was so great that she deserved something excellent when the flight arrived at the gate. If that happened, he would sign a contract agreeing to fly Southwest for life as long as that flight attendant worked there. Someone at Southwest saw it, got a big cookie with an inscription recognizing Holly, and brought it to the gate along with a contract for the passenger to sign. Awesome. Read the whole story.

So, let’s hear some of your feel-good stories as you work off that turkey coma.

—
When a Southwest pilot held a plane for a man who was traveling to be with his daughter in the wake of his granddaughter’s murder, the media erupted with joy. Some people even went as far as calling the pilot a hero. I suppose it’s no surprise, though I can only shake my head and grind my teeth at such loose use of the word.

Heartwarming tales like this one gain a power of their own, and simple actions can be turned into insanely overblown feats of awesomeness. In 25 years, they might call this man a saint for what he did; simply holding an airplane for 12 minutes may morph into him deciding to turn an airplane around against all odds after it took off just to pick this man up. Why do I say that? It’s happened before and will happen again.

Case in point. Peter Greenberg wrote about this Southwest pilot here on BNET. He told a tale of a story that he “wrote years ago.” Too bad this one doesn’t pass the sniff test.

Peter recounts that a passenger was flying on the last flight of the day from Minneapolis to Chicago. He stopped the pilot and told him that he was going to Chicago only to spend the night and fly to Rochester, Minnesota in the morning to get his sick son to the Mayo Clinic. I’ll let him take it from there.

“I looked at the route map in your inflight magazine,” the father said, “and noticed you fly right over Rochester on the way to Chicago. Do you think you could just stop and drop us off?”

The pilot thought about it. Then he called air traffic control and explained the situation. Could they possible [sic] route his flight with a stop in Rochester and still get him to Chicago just a little late? After all, it was the last flight of the day and no passengers were connecting to onward flights.

The word from the ATC: Go for it.

In the end, the pilot asked the passengers for permission and they unanimously agreed. And to add a cherry to this sundae, the flight still arrived in Chicago 10 minutes early.

It’s definitely a warm and fuzzy story, but there are so many holes in it that it could double as Swiss cheese.

If this pilot really wanted to help the passenger get to the Mayo Clinic, he should have given him cab fare. The Mayo Clinic is a mere 80 miles on a straight shot from Minneapolis/St Paul Airport. So the idea that someone was taking his sick child to the Mayo Clinic via an overnight in Chicago is downright absurd.

There’s also the issue of why Northwest, an airline with a massive hub in Minneapolis, would route someone via Chicago anyway. The airline did fly from Chicago to Rochester at one point, but it’s been 25 years or more since that happened. Northwest has, however, long had nonstops between Minneapolis and Rochester going all day long. That continues today despite the short distance.

But if that’s not enough, I’ve never heard of anyone asking air traffic control for permission to go somewhere. Sure, if it’s a congested airport and there are weather problems then you may be delayed going into that airport, but I think we can all assume that Rochester has never had that problem. And can we really believe that there was enough schedule padding that long ago that even with a time-consuming stop, the flight would have arrived 10 minutes early? How much of this story could possibly be true?

That’s hard to say, but by now it’s traveled through multiple mouthpieces, likely amplified every single time to get to the point it’s at now. It’s become a tall tale, and Peter ran with it here. (I asked him multiple times for a copy of the original story he wrote, but he was unable to provide one.)

In the end, people simply like to latch on to stories that warm the cockles, and this is certainly one of them. But as time passes, these stories aren’t necessarily closely tied to reality. Should stories like this become reality more often? I doubt it’s even possible, but certainly things like holding a plane for 12 minutes should happen from time to time. Oh wait, it already does happen all the time.

People at Southwest and other airlines decide to hold flights day in and day out for one reason or another. I don’t want to take anything away from the captain at Southwest who made the decision to hold the flight. That was a great thing to do, but a delayed connection, a late customer running through security; these are all things that happen on a daily basis and airline employees rarely get credit for it. I guess the right combination of a heartbreaking story, a great quote, and some media coverage can create a story (real or not) that lasts forever.

Update: Thanks to reader FBKSan who found the original article from Peter Greenberg in 1990! As I responded in the comments, there were a ton of inconsistencies:

Thanks FBKSan!

Last Friday, AirTran (not Southwest) put out a press release announcing that it would pull out of five cities by next June. Four of those don’t have Southwest service so they will really be losing out on low fare service. I’m sure the timing of this announcement was not a coincidence – companies put out release on Friday with the hope that the news will be forgotten by Monday.

This strategy became quite clear when Sunday afternoon, Southwest announced it was adding a bunch of new routes to its network, including a lot of international. The talk was all around all the new things that are coming, but the new schedule also slipped in some bad news on some routes, with some big cuts. This wasn’t discussed at all, and while Southwest usually puts out a full PDF file with all changes, it opted not to do it this time. I’m not a fan of the new opaque strategy here.

The story you see picked up most is Southwest going international. I’ve seen headlines like “AirTran to add routes to Mexico, Puerto Rico” or “Southwest’s Airtran Adds New International Routes.” Great news indeed, but it’s too bad that people aren’t really looking at all the changes.

First let’s talk about the cities that AirTran will abandon. Three of those are small cities: Bloomington/Normal (IL), Charleston (WV), and Knoxville (TN). We’ve already seen four other cities lose out from this merger with Asheville (NC), Atlantic City (NJ), Newport News (VA), and Quad Cities/Moline (IL) going away in a previous announcement. I can’t imagine we’re done. I’d imagine that Allentown (PA), Branson (MO), Harrisburg (PA), Huntsville (AL), Lexington (KY), Pensacola (FL), Portland (ME), and Rochester (NY) are all very anxious right now. Hopefully some will stay in the network, but I would be surprised if all did. Southwest’s model just isn’t built to serve small cities the way AirTran’s was.

AirTran will also pull out of Miami and Washington/Dulles. In Miami, it’s a cost issue. That airport is absurdly expensive and has been involved in one debacle after another when it comes to building new infrastructure. AirTran had already cut back there on its own and Southwest is finally just pulling the plug, as it should. With Dulles, that’s a more curious announcement. Southwest will still fly there, but it hasn’t been able to grow the operation much at all over the years. You would think that Atlanta would be a likely connecting point in the new network, but I guess not. Neither of these are huge surprises, that’s for sure.

But all that was forgotten when on Sunday night, Southwest came out with the news about all its summer schedule changes. The big headline is the welcome news that Southwest is using AirTran to expand into Mexico and the Caribbean, as it has said it would all along. Here’s everything that coming into the network (some are seasonal changes). These are all AirTran except where noted.

• Baltimore – Branson (Saturday only), Los Angeles, New Orleans, San Francisco, and Seattle
• Chicago – Oklahoma City (on Southwest)
• Denver – Akron/Canton, Dayton, and New York/LaGuardia
• Ft Lauderdale – San Juan
• Houston – Kansas City, Raleigh/Durham, and Seattle (on Southwest)
• Las Vegas – Norfolk (on Southwest)
• Nashville – Seattle (on Southwest)
• Orange County – Cabo San Lucas and Mexico City
• San Antonio – Cancun and Mexico City
• San Diego – St Louis (on Southwest)

First things first. A hearty congrats to the mighty CAK (Akron/Canton) for not only holding on to AirTran service but seeing new, growing flights from the airport. I’ve always been a big fan of that airport, and this is yet another win. It means even more with other smaller cities losing service entirely in the merger.

Also, the Mexico stuff make a lot of sense in general. It’s about time that Southwest started tapping into that. And with Orange County just opening its customs/immigration facility this month, Southwest can finally serve Cabo from there, a market which should do very well. Not so sure about Mexico City from Orange County, however. I see Orange County as a great place for the rich and plastic to fly down to Mexican beach resorts. It’s not, however a big ethnic market and that’s more of what Mexico City needs. I’ll be interested to see how that goes, and I’ll be interested to see how Volaris, Southwest’s partner, feels about these moves.

Now Southwest would like you to think that this is it. No other big changes are happening in the network, but that’s not the case. Along with a roller coaster of frequency increases and decreases in a variety of markets (as usual), there are some routes going away. Some might be seasonal, but I bet not all.

Wondering where those slots are coming from to operate the new Denver – LaGuardia flights? Well, LaGuardia is losing AirTran’s Orlando flights. JetBlue will be happy to hear that one, and it will also be happy to see that Boston to Florida flights on AirTran are gone as well (Ft Myers and Orlando).

We’ll see the relatively recent upstart market of Milwaukee to New Orleans go away in the AirTran network. Southwest is cutting Albuquerque to Salt Lake as well as Midway to Islip. Islip continues to shrink as Southwest gets more traction at New York City airports.

So, while there is some positive news here that shows the direction of this merged airline, there is going to be some pain as well. In particular, the small cities left in the AirTran network should be really feeling nervous about the whole thing.

[Original photo via Flickr user dougtone/CC-SA 2.0]

Keep your shoes on at the airport? Maybe – CNN Out of the Office
There’s talk of you being able to keep your shoes on through security. I’m not getting my hopes up.

Getting your money’s worth in business class – BBC Passport Blog
I was asked about which airlines and flights to take to get that flat bed in business class.

In the Trenches: Missing Something Good – Intuit Small Business Blog
I get a lot of unsolicited emails, and that makes it tougher to find those that matter.

For more than a decade, the conventional wisdom has been that the legacy carriers are ultimately doomed and that Southwest Airlines will take over the world – or at least its air transportation needs. Nowhere was that supposed to be more true than in Philadelphia, a market Southwest entered in 2004, fully expecting to take over the hub operations of a dying US Airways. But a funny thing happened on the road to this inevitable victory: US Airways fought back, and it is now Southwest that is in retreat in the City of Brotherly Love.

Philadelphia, however, is only a skirmish compared to what’s ahead. A much bigger battle is looming in Atlanta, where Southwest’s acquisition of AirTran has put the airline on a collision course with Delta Air Lines. As in Philadelphia, Southwest enters this market with high expectations. But as explained below, it is by no means inevitable that Southwest will thrive in Atlanta. If it does not, the era of Southwest’s industry ascendancy will end, and the U.S. legacy carriers – with their home turf secured – may enjoy a far more stable future . . . until the next major challenger rises to the occasion.

To understand why Southwest might disappoint in Atlanta, we need to look at what happened in Philadelphia. Last month, Southwest quietly revealed that it was pulling out of 4 additional short and medium haul Philadelphia markets, and reducing frequencies on other routes. This brought to 11 the number of Philadelphia routes that Southwest has entered and subsequently exited in Philadelphia. Aviation Consultant Mike Boyd has provided the data which explains the reason for this pullback. Quite simply, Southwest was getting its butt kicked.

On the soon-to-be-terminated Philadelphia-Pittsburgh route – a classic short-haul, business-oriented market (in other words, a “perfect” Southwest route) – Southwest’s load factor was 20 points less than that of US Airways. And on the tickets it did sell, it got 11% less for them. In the even more important Philadelphia-Boston market, where Southwest is reducing service but not yet exiting, the results look even worse. There, US Airways has an almost 30 point load factor advantage and an astonishing 40% yield premium over Southwest.

The only conclusion that can be drawn from these results is that Philadelphia fliers, especially the business travelers who buy higher-priced tickets, have preferred to stick with US Airways rather than give their business to Southwest. There are many reasons to believe the same could be true in Atlanta. Why? First, as has been demonstrated repeatedly, it is very difficult to make money playing second-fiddle at a major hub airport. Delta is gargantuan compared to AirTran in Atlanta – approximately three times the size of its smaller rival, with a global reach, a massive entrenched frequent flyer program, and a corresponding ability to schedule far more frequencies between city pairs to allow travelers to fly exactly when it is most convenient for them.

Of course, these are the same hurdles that AirTran had to overcome to build its presence in the Atlanta market in the first place. But it did so at a time when AirTran’s unit costs were much lower than Delta’s. Back in 2004, AirTran’s CEO claimed he could fly a passenger for 35% less than it cost Delta looking at stage length-adjusted unit costs. It is difficult to know what cost advantage Southwest will have over Delta, but it is certainly far smaller than 35% considering Delta’s costs have come down while Southwest’s climbed since 2004. And AirTran’s incredibly low cost structure will likely climb to Southwest levels very quickly as the merger progresses.

Even with its significant cost-advantage, it is not as if AirTran has truly thrived in Atlanta. “Survived” is a more accurate description. Where it competes head-to-head, Delta has shown revenue premiums of 30 percent or more (remarkably similar to US Airways’ premium over Southwest in Philadelphia). Lower revenues and lower costs have generally enabled AirTran to eke out tiny profits. Last year, for example, AirTran made $38 million. And so far this year, AirTran has apparently been modestly unprofitable, even as all the legacy carriers (except American) have made money.

To produce even this break-even level of financial performance (assuming oil prices do not decline), Southwest is going to have to significantly boost unit revenue from the current AirTran network. For while the combined airlines will undoubtedly have some cost-saving synergies, the 800-lb gorilla in the closet is going to be the expense of bringing AirTran’s relatively low paid workforce up to Southwest’s best-in-industry wages. For example, a Southwest pilot now makes about $260 an hour. An AirTran pilot makes about $100 less.

Boosting these revenues may not be easy for Southwest. First, it plans to give up checked-baggage and change fees, putting it at a significant revenue disadvantage to Delta — which can charge the same base fares and still collect this additional ancillary revenue. Southwest will also be eliminating some of the in-flight perks valued by AirTran’s business customers: a separate business class cabin and seat assignments. Southwest may also face push-back from its new frequent flyer program which can be far less generous than AirTran’s, especially for passengers buying discounted tickets.

Finally – and unlike in Philadelphia – there are virtually no under-served Atlanta markets for Southwest to stimulate with its famous low fares (which are now a lot higher than they used to be, but still cheaper than what legacy carriers typically charge when they don’t face competition). AirTran already flies to nearly all of the places Atlanta travelers want to go. So if Southwest is going to make money in Atlanta, it is going to have to do it largely on the routes AirTran already serves.

Bottom line: Atlanta will be a challenging environment for Southwest. Failure may have been an option in Philadelphia, but it is not an option in Atlanta. Unless Southwest rises to these challenges, what we think we know about our domestic aviation industry is again about to change.

Beginning on February 12, Southwest will launch flights on top of the AirTran flights that already exist in four markets while adding one new one. Here’s how it’s going to look.

This all seems funny, right? I mean, Southwest will bring its own airplanes into Atlanta just as it would in almost any new city. The pattern of connecting a new spoke to its largest operations has been done time and time again. The only difference is that Southwest now owns AirTran, an enormous airline in Atlanta, yet it’s just going to sit on top of AirTran and run a parallel operation. Why would it do that?

Let’s think about how Southwest is approaching this. In Delta/Northwest and United/Continental, those airlines have both pitched this as a sort of “merger of equals” type of thing. Two great airlines come together to make one. Blah blah blah. I’m going to turn into Julia Child for a minute and look at this in cooking terms, because for some reason that’s the analogy that came to mind. Then again, I know nothing about cooking. Let’s go with the Swedish Chef.

Say that United is made with recipe U and Continental is made with recipe C. Both are recipes for airlines, but the ultimate goal is to improve them together to create a better, single airline with recipe UA. To get there, you put pieces of recipe C into recipe U and pieces of recipe U into recipe C to bring them closer to each other. But you also improve on both by adding extra ingredients until they’re both that same new recipe UA. It’s a relatively slow process, but it’s been time-tested.

With Southwest/AirTran, it’s different. Southwest is the dominant carrier, and it’s trying to get AirTran to conform to the Southwest standard, ultimately possibly taking bits and pieces from AirTran, but only around the edges.

To do this, Southwest sticks with recipe S for its product, and it tries to take AirTran’s recipe A and turn it into recipe S without much disruption at all. How does it do that? It starts with a big batch of recipe S and slowly stirs recipe A into it so that it dissolves. That’s what I think is happening here.

Southwest is bringing recipe S into Atlanta with this new service starting in February. This is the core Southwest-style operation that will form the basis of the combined airline. Slowly, we’ll see new routes brought under the Southwest name while routes slowly disappear from the AirTran brand. I imagine eventually we’ll see AirTran stop serving these (and all other) cities and the service will be consolidated under Southwest. Slowly AirTran cities will be brought into the Southwest family or they’ll disappear (as has already happened to Asheville, Atlantic City, Moline, and Newport News). Over time, Atlanta will be all Southwest, but the transition won’t happen overnight.

I bet we don’t see Southwest simply paint over the ticket counters one night in Atlanta. Instead, we’ll see Southwest get a larger and larger presence as AirTran gets smaller and smaller. Eventually, AirTran will just disappear once the entire fleet has been brought under the Southwest brand.

To be honest, I think that’s a smart way to handle this kind of merger. There’s no reason to just throw it together at once and call it the same name. Do it slow, and do it right. With that in mind, there are some things that need to be done quickly, and Southwest is addressing them.

As part of this announcement, Southwest also said that it would offer reciprocal elite status in the two frequent flier programs. So if you’re elite with AirTran, then you’ll get A-List status with Southwest and vice versa. CEO Gary Kelly also said today that codesharing between the two airlines would begin in the first half of next year. So you allow people to freely use either brand and get the same benefits while the AirTran brand still exists.

I like it. Now, whether or not Atlanta will work in the Southwest system is a whole different question. I actually have a guest post coming up on that topic soon.