Air Travel
and travel-agent commissions should produce about $80 million in annual savings, offsetting expected security and insurance costs. Southwest plans to increase yields and fares steadily through 2002, though revenue per available seat mile faces pressure from weak demand. The airline’s capital spending in 2001 totaled
almost $1 billion, and Southwest has targeted outlays of about $600 million for 2002 and $1.1 billion for 2003.
Simple Operating Model with Low Cost Structure
Southwest’s use of only one aircraft type, the Boeing 737, and its no-frills service and ticketless operations have enabled the carrier to maintain a low-cost structure, compared with its competitors. Southwest does not operate a hub and spoke system and does not have any international operations. Thus, security will not be as difficult for Southwest to enforce as anticipated for most other carriers.
Capacity Expansion
With many airlines worldwide having pared capacity 20% because of the unprecedented drop in customer demand following the hijacking attacks, the jetliner market is glutted and Southwest could buy used 737s at low prices. The carrier did not reduce its capacity after the terrorists attacks. As the rest of the industry struggles to resume growth, Southwest plans to receive 19 new aircrafts and will retire some older planes over the course of 2002, for a net addition of 11 airplanes representing capacity expansion of 3.5 to 4 %. The airline plans an annual capacity growth rate of 8% through 2012.
Growth Opportunities
The airline has a history of communities petitioning for its service, which, in addition to market-share shifts to Southwest from the industry’s capacity reduction, should provide ample growth prospects. The chance to add aircraft at bargain prices could open the door for Southwest to augment its growth by becoming more of a contender in markets for long-haul flights, which account for only 15% of the routes in its system now. Southwest could shift its short-haul strategy to enter long-haul markets more aggressively. The airline may be a viable competitor to high-cost carriers in specific markets.
Internet Site
Southwest.com is one of the world’s busiest travel sites on the Web. The airline has added features for rental-car and hotel reservations to its Internet site, and plans more additions.
Productivity Advantage
Southwest derives its cost advantage from productivity and not labor-rate advantages. Southwest will need to continue to pay a market wage, but that it should be more successful than other carriers in achieving productivity gains to offset any increases. Therefore, the cost gap between Southwest and the rest of the industry could grow if airline consolidation continues.
Personnel Needs
Southwest employees more than 33,000 employees throughout their system. Last year alone, Southwest reviewed 194,821 resumes, which resulted in 6,406 new hire employees in 2001. Successful candidates must be an altruistic, outgoing person who likes to serve others and enjoys working with a team, we want you. If you're the kind of person who enjoys a more secure, more regimented, more inflexible, more [next page]