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November 24, 2014

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Southwest Airlines positioning itself as national juggernaut

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Sun file photo

Southwest Airlines planes sit at McCarran International Airport.

Count on Southwest Airlines being both juggler and juggernaut in the months ahead.

The discount air carrier is by far the busiest airline at McCarran International Airport, with 44.1 percent of each day’s commercial flights — in September it flew more than 1.3 million passengers to and from Las Vegas. But Southwest is still making moves to win more customers’ hearts and money.

Keeping all the balls in the air is Southwest Chairman and CEO Gary Kelly, who relishes the juggler role and is confident that his company can pull it off. By the time Southwest is done with an extreme makeover, it could well be the profit-making juggernaut analysts are expecting.

Here’s what’s on tap:

• Southwest is in the early stages of integrating AirTran, which it is buying for $1.42 billion. The acquisition, announced in September, would enable Southwest to enter the largest market it currently doesn’t serve: Atlanta. It also would give the company more gates at New York’s LaGuardia International Airport and a new presence at Ronald Reagan National Airport near the Capitol in Washington, D.C.

• After months of testing, Southwest is rolling out its in-flight Wi-Fi. The airline announced it will cost passengers $5 per flight to use it.

• Southwest will soon announce whether it will begin flying Boeing 737-800 jets, which are longer and carry more passengers than its current planes. Boeing 737-700 and -300 jets carry 137 passengers. The 800 planes have a greater range, making possible flights to Hawaii.

• The airline unveiled some details about its partnership with Volaris, Mexico’s second largest airline and a discounter in the mold of Southwest. Volaris tickets are for sale on Southwest’s website, and plans include more opportunities to connect each other’s customers at airports where both carriers fly.

• Southwest’s marketing push to emphasize that “Bags Fly Free” has been a big success. Next, the airline plans to emphasize buying on southwest.com and, after that, pressing that unlike most carriers, Southwest doesn’t charge extra for canceling and rebooking a flight. Executives acknowledge that message may be a little harder to convey.

“We want to be bold, we want to be aggressive, we want to be the agitator. We’re very pro-consumer, we’re very pro-competition,” Kelly said recently. “Without somebody like Southwest Airlines, you don’t have that. You have a very comfortable, country club-like industry.”

Buying AirTran is the biggest project on Southwest’s plate. It’s also the topic with the most unknowns because company executives can’t talk publicly yet about details such as routes and schedules.

Although Southwest will pick up 37 cities on AirTran’s route map and add 138 aircraft, it’s too early to tell how the blending of the airlines would affect Las Vegas.

Southwest has said that it and AirTran would operate independently until details are worked out and they work under one operating certificate.

Most of AirTran’s flights use a hub-and-spoke model, meaning that most of the airline’s flights go to its primary cities of Atlanta, Milwaukee and Orlando, Fla., with connecting flights to 67 airports in the AirTran system. By contrast, most Southwest routes are point to point, meaning that flights could operate randomly among any of the 69 destinations on Southwest’s map.

Most AirTran routes are in the South. AirTran’s routes in the West include cities served by Southwest with nonstop flights to Las Vegas — Los Angeles, San Diego, San Francisco, Seattle and Denver.

Prospective cities on the AirTran route map for Las Vegas include Wichita, Kan.; Des Moines, Iowa; Moline-Quad Cities, Ill.; Bloomington-Normal, Ill.; and Memphis, Tenn.

The deal has been approved by the boards of both airlines, but must be approved by AirTran shareholders and regulators with the Justice and Transportation departments, and the Federal Aviation Administration. Labor unions won’t need to approve the deal, but support it.

The different operations of the two carriers raise many questions, some of which have been answered by Southwest and some that have been deferred.

For example, Southwest has made it clear that AirTran’s assigned seating policy and two-class service on aircraft would go away as soon as the carriers are integrated. But the new cities would get service without baggage fees.

AirTran customers have mixed feelings on the changes. Although some are excited about the potential of lower fares, others aren’t happy about losing the business-class service. There’s grumbling about the Southwest boarding process, once derided by AirTran in television ads as a cattle call.

Atlanta is expected to become a huge battleground for Southwest, which will be going head to head with market leader Delta Air Lines. Southwest commissioned an analysis of Atlanta and determined that its presence could service more than 2 million passengers a year and save consumers more than $200 million with fares below Delta’s.

Bob Jordan, Southwest’s executive vice president of strategy and planning, said that when the integration is complete, Atlanta could become the airline’s busiest station, a title McCarran is barely hanging on to after growth at Chicago’s Midway Airport.

“There weren’t a lot of surprises about AirTran when we did our due diligence, but most of what we did learn was upside,” Jordan said. “We were impressed with its knowledge of Atlanta and of the Boeing 717.”

A longer version of this story has appeared in In Business Las Vegas, a sister publication of the Sun.

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  1. Not good. Do we have a monopoly here? There has been too much consolidation in Banking and airlines, and casinos.

    We need these businesses broken up the way Teddy Roosevelt broke up the trusts.

    What's the difference between one company running everything and the government running everything?

    Maybe we should have the government run the airlines, the way they run the Interstate Highway System.

  2. mred....."one company running everything"??
    Such hyperbole!!

    You have seen how governments run things.....right into the ground!!! No thanks.

  3. If I remember correctly Southwest (the airline I fly) Was a unionized airline a couple of decades ago and were doing pretty much the same as all the other airlines, However while the employee's were about to go on strike the stockholders and the CEO made a bold move and told the employee's along with the union that if they thought they could run the airline in a profitable way with there expectations of compensation then they should buy it, SO they did buy it and turned it into a no frills airlines because the employee's worked on the front lines and heard it day in and day out what the customer wanted and they delivered on what they wanted and that is still what they are doing delivering what there customers what.

    As the other airlines lose more and more business to Southwest they simply raise the fares on there current customer or come up with some other fee for this or fee for that and as they do these things more and more people leave the others and go to Southwest keeping a vicious cycle going, I say Bravo to Southwest for thriving in the last twenty years and keep up the good work and do not lose sight of providing a service to a customer.

    I don't recall Southwest taking any Government loans or bailouts in the past but I could be wrong.

  4. Southwest came in post airline deregulation, made some really sound decisions----point to point vs. hub and spoke, use of one plane---the 737, locking in lower fuel prices through long term futures contracts. The legacy carriers hub and spoke model, flying anywhere from everywhere business model was a loser. The only way they have been able to survive is through mergers and bankruptcy protection. This move acquiring Air Tran is another great move by Southwest. Capacity is being reduced, there are still too few passengers chasing too many seats. Very little overlap in this acquisition. At some point all this capacity reduction will result in higher fares, no doubt. Probably the remaining legacy carriers will try to merge as well, providing they can get DOJ approval.

  5. Southwest is the only way to fly and their new improved boarding system eliminates the cattle call completely. The purchase of AirTran will make a great airline even better when its complete.

  6. mred, the reason there has been consolidation is because the airlines have been losing money hand over fist. The only way they have been able to compete (or go into new markets) is to consolidate with a competitor. I've flown most of them over the years, and Southwest is by far the best one to fly. The prices are better, the service is best in the industry, the lack of fees, etc. are a winning combination. Ipersonally like the non-assigned seats. You just get in line early (when it's shorter than 30 people) and you get to pick the best seat. Sure, the ones at the end have to take what's left, but so what.

  7. I have to say this, Mred's concerns are valid, however if you read the US Government Accountability Office's (GAO) 2008 report on the US airline industry, it concludes, with a few exceptions, that the period from 1996 to 2008, a period of consolidation, did not lead to less competition among the carriers and as a result an increase in fares. They found that the number of carriers, on average, serving a route pairing (e.g. New York to Los Angeles) increased from 2.9 to 3.3 and with few exceptions (mainly small lesser served routes) did air fares increase. It found that when rates were raised on a given route and it became more profitable, additional competition came in. It remains to be seen how this analysis will hold up in the future. Airlines have of late been reducing their number or aircraft and flights (reducing capacity) due to weak demand. At some point supply will come back into balance with demand and then airfares should increase. The CEO of Southwest was quoted in connection with the acquisition of Air Tran, that it was the only way that Southwest could grow in the current economic environment. Fortunately for them they appear to have gotten an operation that augments and expands their existing operations perfectly.

  8. Southwest in Atlanta?? Yea baby, go after the big boy and show them how its done!!

    Delta has merged with a few others with horrible customer service results.

    They act like they are God to the world of air travelers.

  9. Oh, and I see they picked up some of those Boeing 717 single aisle 100 seaters as a part of the deal, now they are a sweet ride on a short hop. Hated to see Boeing stop making them, they didn't sell for reasons of commonality although they have a lot going for them. A lot roomier than those CRJ's where you feel like you're a sardine in a can. Hawaiian Airlines operates them for inter-island flights. Those people know how to operate an airline also, excellent customer service.

  10. Erwin, The 717, I believe was an evolution from the old Douglass DC-9 / MD-80 Series of planes. When Boeing took over MD, it didn't take them long to phase out the MD line (MD-80/90, MD-11(DC-10), etc. after a short run as Boeing designated models (717). I guess the size (seats) was too similar to the other Boeing offerings. The best plane I ever flew on was a 727 that Midwest Express used to fly, an older model, but 2 seats on each side of the aisle where some lines went to 3. It was like a first class section for the entire plane. I'd be surprised if Southwest didn't phase out all of the models they aquired from the other airline that are not 737, which has been their business model for years, for lower maintenance costs, No need to stock parts for several models, any pilot can fly any plane, etc. Time will tell. I remember the days when flying was considered a real luxury (not really that long ago, maybe into the 1970's). Now it's become a Greyhound of the sky. SW is still my favorite. I even love the "corny" songs the flight attendants sing on the plane (do they still do that?).

  11. Joe, from what I heard Southwest loves the 717's it acquired with Air Tran, it was a "pleasant surprise" according to one official quote. They are fuel efficient and easy to work on, the so called "C" checks take far less time than comparable aircraft and other maintenance is easier as well. At one point Boeing was thinking of coming out with a strech version of the 717 but they concluded as you correctly pointed out that in terms of number of seats it would be similar to the 737. The only real knock on it from what I gather was its lack of commonality, the airlines want to type rate their pilots in an aircraft and have that cover a whole family of airplanes, e.g. all Boeing 737's or all Airbus 320's. Still for a short to intermediate hop, the 717 I'm telling you, is way better than the CRJ's, Embraer, all that, way roomier and more comfortable. Point taken on the 727, another fine aircraft in its day.

  12. Erwin, I certainly agree with you that the 717 would be a far nicer plane than the small "puddle jumper" planes you mentioned on short hauls. The Bakersfield market once had 727's, DC-9's, MD-80's, 757's, etc. (even an MD-11) But with the consolidation came the loss of airlines such as American, United, Delta, etc. in this market. Now it's mostly small carriers with small planes (and big prices). Many a time we have gone out of L.A., Burbank or Fresno (each 2 hours away) because it saved hundreds of dollars. There is a new (to this market) airline offering Las Vegas flights for $30 or so. I imagine that's a "promotional" rate that will adjust to market price down the road. Unfortunately, Southwest says this market is not large enough to enter, although, if they offered flights from Bakersfield to Las Vegas and Phoenix, they would fly full. Actually Southwest might be good to split the fleet between a couple different models. If the 737 was ever temporarily grounded for safety reasons (like the DC-10 in 1979 or 80 after the Chicago crash), it would shut them down. I appreciate your comments and knowledge on the subject.