Southwest weighing options

Friday, Sept. 21, 2001 | 11:02 a.m.

Southwest Airlines, the only big airline operating fairly normally and not cutting jobs, is nevertheless considering cost-cutting measures.

Among the considerations are service reductions, although a Southwest executive said it's too early to draw any conclusions from weak traffic trends seen since last week's terrorist strikes.

Anything Southwest does may have a significant effect on Las Vegas, since it brings more gamblers to the city than any other airline. Southwest is the market leader at McCarran International Airport and therefore is a key component of Southern Nevada's $7.8 billion casino gambling industry.

"Service reductions are a very real possibility," said Gary Kelly, Southwest's chief financial officer. "It's not the plan at this stage, but it's something we're obviously looking at because the traffic demand is so light. I can't see us letting it go on like this for 60 or 90 days."

Kelly said the company will analyze passenger trends to determine what markets would be affected if reductions occur. If service is reduced, it could come as soon as next month.

While other airlines have announced layoffs with their service reductions, Kelly said layoffs would only be considered as a last resort for Southwest.

The Dallas-based company acknowledges that its predominantly short-flight schedule could result in harder times ahead for it compared to other airlines. The reason: With more time needed for security checks, some potential customers may not bother to spend extra time at the airport and just drive instead to Las Vegas from Los Angeles, Phoenix or Reno.

So far, Southwest has managed to do what few other airlines have been able to do in the past week -- operate nearly all of its flights and not lay off any employees.

But then, Southwest has made a habit of bucking trends and surprising people.

The company was one of only two major airlines to show a profit in this year's second quarter, posting net income of $175.6 million, 23 cents a share, on revenue of $1.55 billion for the three months ending June 30. That compares with income of $190.6 million, 26 cents a share, on revenue of $1.46 billion for the same period a year earlier.

While other airlines have seen their stock prices plummet this week, Southwest has suffered only a moderate drop.

"The reason for Southwest's success can be summed up in two words: Herb Kelleher," said Terry Trippler, an airline expert with OneTravel.com, Minneapolis.

Kelleher, the airline's chairman of the board, turned the titles of president and chief executive officer to Colleen Barrett and Jim Parker, respectively, on June 19. But he's still active at the company and is regarded highly enough by Transportation Secretary Norman Mineta that he was named to an airport security task force earlier this week.

"Under Kelleher, the company adopted a philosophy that during the good times, they would operate as if times were bad," Trippler said.

That frugal attitude has built a cash reserve the airline is tapping today.

Kelly said the company is using $1 billion in cash reserves and also has tapped into a $475 million line of credit to operate its 2,700 daily flights at 58 airports, including 169 daily round trips in and out of McCarran International Airport.

The airline says its flight schedule is back to normal with more than 97 percent of those flights operating on time.

But what isn't normal is how many people are flying. Fear emanating from last week's terrifying hijackings and uncertainty about everything from the impact of U.S. reprisals to the terrorism to the appropriateness of playing in Las Vegas so soon after the deadly attacks are keeping travelers away.

Southwest won't disclose its loads, but passengers arriving at McCarran have said their planes were less than half full early in the week with loads improving as the week progressed. Kelly said Southwest can handle that for awhile, but eventually, will have to consider other options.

"We can absorb weak revenues for quite some time," Kelly said. "In addition to being better prepared for a crisis and access to a line of credit and very little debt payments, we have a culture that is efficient and cost-effective."

One-Travel.com's Trippler said Southwest is notorious for its efficiency.

"They have tremendous worker productivity. They can turn an aircraft (prepare a plane for departure) around in 20 minutes," Trippler said. "By using time and planes more efficiently, they can run more planes through fewer gates. Fewer gates mean it costs less for airport leases. Southwest has always been a lean, mean flying machine."

Kelly said a companywide initiative is under way to find the best ways to cut expenses and those ideas will be reviewed by executives Monday. Among the matters under consideration:

* Southwest already has alerted the Boeing Co. that it is deferring acceptance of 11 737 jets scheduled for delivery this year. There are 27 other planes scheduled for delivery next year, but Southwest still plans to take those for now. The airline said it is still committed to starting service to Norfolk, Va. One of the Norfolk flights is a non-stop round trip to Las Vegas. However, if the company does not take delivery of the 11 jets, it may have to reduce service elsewhere to effect the Norfolk startup.

* Advertising is being scaled back. Southwest's humorous television spots that run during the National Football League season have been shelved for now in favor of a more compassionate message following the Sept. 11 tragedy. Colleen Barrett, Southwest's new president, sums up the company's reaction to the tragedy in one of the new ads.

* A capital expense project to expand Southwest's corporate headquarters at Love Field in Dallas has been put on hold.

* Kelly said that while Southwest is cutting corners wherever possible, it isn't cancelling sponsorships and promotional events that it has committed to. Southwest is among the airlines that pride themselves in contributing to causes in the communities they serve, often participating in fund-raisers by donating tickets to be given away as prizes.

* Layoffs are among the last places the airline would cut, Kelly said. "We can't promise that we won't ultimately have layoffs, but it's absolutely one of the last options," he said. In the airline's 30-year history, the company has never had mass layoffs in an economic crunch. Southwest has 700 employees in Las Vegas.

* Southwest could be one of the beneficiaries of a federal government aid package under consideration by federal lawmakers. Part of the package would be grants compensating airlines for closing the nation's airspace for three days after the terrorist attacks. Lawmakers also are expected to make billions of dollars available in loans and may defer some tax payments.

archive