Southwest Airlines will fly any plane, as long as it's a Boeing 737, and let passengers sit anywhere they like, as long as they get there first. Sticking with what has worked, Southwest has expanded its low-cost, no-frills, no-reserved-seats approach to air travel throughout the US to serve almost 70 cities in more than 35 states. Now among the leading US airlines, Southwest still stands as an inspiration for scrappy low-fare upstarts the world over. The carrier has enjoyed 38 straight profitable years, amid the airline industry's ups and downs. Southwest's fleet numbers about 550 aircraft. The company acquired AirTran Holdings, the parent company of AirTran Airways, in 2011 for about $3.2 billion.
By adding AirTran to its hangar, Southwest now has access to more airports in the Eastern and Southeastern US, as well as to international destinations in the Caribbean and Mexico. The deal could prove to be a bumpy ride until the kinks get worked out. Because the airlines are represented by two different unions, integrating the staff could prove to be difficult. Within a few days of the acquisition, Southwest named its own Bob Jordan (executive VP of strategy and planning) as president of AirTran Airways.
AirTran will maintain its brand and procedures until the Federal Aviation Administration certifies that the two airlines may operate as a single entity. It is anticipated that AirTran aircraft will gradually be rebranded as Southwest Airlines over the span of several years.
While Southwest will incur some hefty transaction fees, it recognizes the profit potential of the expansion. For 2010 the company realized a $360 million increase (364%) in net income over 2009, but that boost came after a 44% decrease in 2009 compared to 2008. Southwest and its industry peers struggled through disastrous market conditions brought on by volatile fuel prices, fuel hedging activities, a severe drop off in consumer demand, and an economic recession. Southwest responded by slashing capacity, retiring older aircraft, postponing delivery of new planes, offering early retirement to some 1,400 employees, and implementing a hiring freeze.
To generate profit during the economic crisis, Southwest, as well as several of its competitors, searched for new revenue streams. Many have piled on charges for everything from checking extra bags to pillow-and-blanket sets to choosing a seat. Protective of its low-cost image, Southwest has staunchly resisted fees and remains one of the few airlines that does not charge for checking a second piece of luggage. In May 2009, however, Southwest saw the value in fees and rolled out measures that are expected to eventually add tens of millions of dollars to its annual revenues. New fees include allowing passengers to bring small dogs or cats into the cabin for a one-way fee of $75; charging a one-way $25 fee for unaccompanied children (ages five to 11); and doubling its fee to $50 for checking a third bag or an overweight bag. These ancillary fees generated $119 million in 2010.
Growing not just in size, the company is expanding in geography. Together with Mexican carrier Volaris, Southwest launched a new service in 2010 that allows passengers to book international flights by connecting with Volaris through 20 Southwest-served cities. Volaris flies to some 25 cities throughout Mexico. Expanding its US travel, Southwest added two more states in 2011 to its coverage -- South Carolina and New Jersey. Southwest has not ruled out code-sharing, in which airlines sell tickets on one another's flights and thus offer potential passengers more destinations, as a way to grow without expanding its own network.
Simplicity has been key to Southwest's success. Most of the carrier's flights are less than two hours, and it usually lands at small airports to avoid congestion at competitors' larger hubs; in Dallas it's the big dog at little Love Field, its birthplace, and in Chicago it accounts for most of the traffic at Midway Airport. Southwest's fleet consists of only one type if aircraft -- the Boeing 737 -- to minimize training and maintenance costs.
The no-assigned-seats policy, which is not universally popular, helps the carrier achieve quick turnarounds at airports and stick to its schedule. Southwest modified its "cattle call" boarding system by assigning passengers numbers within their boarding groups, which eliminates the incentive to form lines hours before takeoff in an effort to secure preferred spots. The boarding process and related changes, including upgrades to gate areas and the creation of a new fare class with early boarding privileges, represent an effort to attract more business travelers -- a key element of Southwest's growth strategy.