Southwest Airlines growth in Las Vegas stays on track

Friday, April 13, 2001 | 11:05 a.m.

DALLAS -- The new executive team taking the helm at Southwest Airlines in June doesn't have any major changes planned for the direction of the company.

That's good news for the Las Vegas economy, since Southwest's growth strategy will mean more flights and more jobs at McCarran International Airport in the months ahead.

It also means Southwest will soon have to solve a new problem -- where to put all the planes it plans to bring to Las Vegas as the number of flights climbs.

Southwest officials have begun discussions with McCarran on what to do when the C gates, where Southwest operates more than 170 flights a day, reach capacity.

One proposal has Southwest using some of the A or B gates, a plan that could lead to the construction of a bridge linking the B and C gates so that Southwest passengers don't have to pass through extra security screening when connecting to a flight. It's estimated that more than 3,000 passengers change planes in Las Vegas on Southwest every day.

McCarran officials say the proposal to expand Southwest into another set of gates isn't a done deal, but just one of the ideas being explored.

Hilarie Grey, a spokeswoman for McCarran, said Southwest's bid to expand and growth plans by other carriers have gotten the airport exploring alternatives. She said the airport also is considering the timetable for expanding the nearly three-year-old D gates, where two wings could be added to turn a Y-shaped concourse into an X.

Southwest also could add some of its flights at later hours like competitors America West and Delta, but the company's future chief executive officer, Jim Parker, said that's not a likely scenario.

Parker, Southwest's top legal officer, will take over the CEO role June 19 when current Chief Executive Herb Kelleher makes a transition out of the day-to-day operation of the company. Kelleher will continue as chairman of the board of directors and said he will work with Ron Ricks, vice president of governmental affairs, as a corporate lobbyist in Washington.

Kelleher, who was treated for prostate cancer last year but shows few signs of slowing down, also will relinquish the title of president to Colleen Barrett, currently the vice president of customers and Southwest's corporate secretary.

Keeping on track

Parker, who joined Southwest in 1986 after working at Kelleher's law firm in San Antonio and as an assistant attorney general in Texas, spent a good portion of last week's annual media day in Dallas assuring reporters that he and Barrett aren't planning any massive changes for the company. He spent as much time explaining what the company wouldn't be doing as he did charting the company's future course.

He isn't planning to be like Kelleher, a well-liked, fun-loving executive, but he will make whatever adjustments are needed to keep Southwest on track as the industry's most profitable air carrier.

Southwest reported net income of $625.2 million in 2000, a 31.8 percent increase over the $474.4 million reported in 1999. Net income per share, on a diluted basis, increase from 89 cents in 1999 to $1.18 last year. Operating revenues increased from $4.73 billion in 1999 to $5.65 billion in 2000.

"I'm not going to be another Herb," Parker told reporters gathered at the company's Love Field headquarters. "There's only one Herb and it would be a mistake to try to imitate him. Besides, this company has a deep management team that shares a successful goal. So, there will be no change in course, no change in direction."

Some specific observations from Parker and how they apply to Las Vegas:

* The twin-engine Boeing 737-700 jet will continue to be the aircraft of choice for Southwest. The company took delivery of its 100th 700 series plane last week. That plane -- painted in the company's new canyon blue color scheme -- is one of 25 jets being delivered to Southwest by Boeing this year. The company will get another 27 in 2002 and 26 more in 2003 and has orders with Boeing through 2012.

With firm orders and options, Southwest could take delivery of 450 planes in the next 11 years, but it will retire some of the oldest of the company's 344 aircraft. The company's existing fleet has an average age of 8.2 years, but 33 of those planes are 737-200 jets, which average 18.8 years old and are headed for retirement.

Parker said one of the company's new challenges will be disposing of old aircraft, but he said because Southwest's maintenance crew has a good reputation in the industry, other companies have lined up to buy the old jets.

Parker said the purchase options Southwest has on some of the future transactions allows the company to substitute the 800 and 900 series 737 jet, which can seat up to 189 passengers. But Parker said he expects the company to stay with the 700 series and its 137-seat capacity. The reason: The added weight of more passengers and cargo would reduce the range of the jet.

* The company will continue to offer more long-haul flights -- a strategy that is music to the ears of the Las Vegas tourism industry. In 1998, casino resort operators didn't consider Southwest when they initiated a plan to recruit more business from east of the Mississippi River. At the time, Southwest was focused on short hauls and hadn't taken delivery of any 700-series planes.

But a group of casino executives met with Kelleher and a symbiotic relationship was cultivated: Las Vegas needed more visitors from the East Coast; Southwest was looking to expand to more East Coast locations with planes that could fly across the country.

At the time, many airlines were cutting service to Las Vegas because they could make more money on business passengers and their high-priced tickets. Southwest's business model allowed it to profit with large numbers of flights, even to a leisure destination like Las Vegas.

Since that meeting, the city's relationship with Southwest blossomed and the number of flights increased. That's why the airline has to start thinking about capacity issues. Bob Montgomery, senior director of properties and facilities for Southwest, said capacity will become an issue when the city gets about 200 flights.

It's impossible to forecast when that will occur. With about 175 daily flights by summer, Las Vegas is Southwest's second-largest city behind Phoenix. The Las Vegas station handles the most customers and luggage in the Southwest system, last year carrying 10.3 million passengers to and from McCarran.

Southwest said flights to Las Vegas represent about 6 percent of all its operations and the company claims about 32 percent of the Las Vegas market.

* How fast the Las Vegas station grows will depend on how the company's new jets will be utilized and the big question that always goes unanswered at every Southwest Airlines Media Day is "To where will Southwest fly next?"

Parker said company executives are still evaluating whether to add a new city later this year or, as the company puts it, "connect the dots" -- add direct service between cities where none currently exists.

There have been published reports that Southwest is considering adding Colorado Springs, Colo., to its route, but the airline won't confirm that.

Pete McGlade, vice president of schedule planning for Southwest, said none of the airline's 58 cities are out of range of Las Vegas and there are no flight restrictions that would make nonstop flights impossible.

Last week, Southwest announced plans for daily nonstop service between Las Vegas and Tampa, Fla., beginning in August. But there are other dots on the Southwest map where there is no direct service to and from Las Vegas: Raleigh-Durham, N.C., Islip (Long Island), N.Y. and Providence, R.I., among them.

Southwest has rolled out Saturday-only service between some cities and Las Vegas and then added daily service if the route proved popular. One of the current Saturday-only nonstop destinations from Las Vegas is Orlando, Fla.

While Southwest officials don't give specifics about what they will do, they have said some of the things they won't do. Parker said there's too much potential business in the continental United States to branch into Canada or Mexico. He also said he doesn't expect the company to follow Aloha Airlines' lead of using Boeing 737-700 jets to fly from the West Coast to Hawaii.

* While Southwest is one of Boeing's best customers, airline officials had no inside information about where the aircraft maker will relocate. Company officials are excited that Dallas is on the list of potential sites.

Kelleher speculated that the presence of two major Boeing customers, Southwest and American Airlines, based in Dallas could be a factor in the company's decision when it chooses between Dallas, Chicago and Denver for a new home.

But Parker dismissed speculation that Southwest would consider the newest Boeing project, the Sonic Cruiser, for long-range routes.

"It definitely doesn't look like a Dallas-to-Houston aircraft," he said, "but I guess you never know."

The Sonic Cruiser, a plane that would travel at just under the speed of sound, isn't in the cards for Southwest not only because of its range and speed, but also because of its capacity.

Southwest's 20-minute turnarounds of planes are key to the company's emphasis on service. But the company's on-time record has eroded in the past year, according to airline quality ratings recently released by Brent Bowen, director of the Aviation Institute at the University of Nebraska-Omaha, and Dean Headley, associate professor of marketing at Wichita State University.

In the quality report, Southwest slid from first to third in a rating formula that measures denied boardings, mishandled baggage and customer complaints as well as on-time performance.

Unjustly criticized?

Ricks, the vice president of governmental affairs, said all airlines -- not just Southwest -- are being unjustly criticized for their records, which he contends aren't that bad. He was critical of lawmakers' efforts to enact legislation further regulating airlines and creating more red tape for airlines to wade through in the interest of helping passengers.

"The way we look at it, we feel it's more important for us to try to fix a problem than to spend the time telling you about it," Ricks said.

Ricks said most of the time, passengers are going to be happy if they safely get to their destination on time.

Ricks said consumer complaints are "a perceived crisis" that have been blown out of proportion. Department of Transportation statistics that are the basis of the Bowen-Headley report show that in 2000, there were 2.98 consumer complaints per 100,000 customers among the 10 major domestic air carriers. For Southwest, the rate was 0.47 complaints per 100,000, the best record among the 10.

Ricks said the real problem facing the industry is the need for infrastructure. Because flying is more affordable since the industry was deregulated in the 1980s, there is more service, more flights and more traffic. But while the industry has grown, there have been few new airports and runways built and Ricks said one of the major problems is that lawmakers don't have the political will to move forward on construction in the face of public pressure on environmental and noise issues.

He said it took 13 years for a new runway to be built at Phoenix's Sky Harbor International Airport after it was conceptualized. That long approval period is why the Clark County Department of Aviation already has begun making efforts to develop a new airport south of Las Vegas in the Ivanpah Valley. McCarran is not at capacity, but Aviation Director Randy Walker has said that by the time he gets all the approvals he needs, those issues may be present.

Capacity issues aren't the only problems on the horizon for Southwest. While company officers say they are working to solve labor issues with its ramp employees, union unrest seems to be most acute in Las Vegas because of the large volume that passes through McCarran.

Representatives of the Transport Workers Union Local 555 conducted four days of informational picketing at McCarran in March. At issue are pay, mandatory overtime shifts, understaffing of the Las Vegas station and company matches on a retirement program.

Last month's picket didn't affect any Las Vegas flights. About 400 Las Vegas employees are represented by the TWU, which has been in contract negotiations with the company for 15 months.

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