AirKarp

Southwest’s stellar financial performance is no joking matter

RSS

Southwest has been operating as a true “business” for 40-plus years.

I mentioned in my last post here that Tonight Show host Jay Leno and other US comedians were having a good time poking fun at Southwest Airlines after one of its flights landed at the wrong airport recently. But it should be duly noted that Southwest has once again reported an impressive annual profit, the 41st straight year the company has been in the black for the full year. And it appears to be smoothly integrating AirTran Airways, which it acquired in 2011, into its operations, achieving $400 million in net pre-tax merger synergies in 2013.

This week the LCC marked an important milestone by starting the sale of international flight tickets to three Caribbean destinations. The former AirTran flights to Aruba, the Bahamas and Jamaica will be Southwest-branded from July 1 and Southwest is in the midst of building its first international terminal at Houston Hobby Airport, a $156 million facility which, by the way, the airline is financing on its own.

There is a lot of talk these days about how well the US airline industry is now doing financially, and US carriers deserve praise for turning things around. In terms of net profits, US airlines have zoomed past the rest of the world, something that would have been unthinkable just a few years ago. But all of the major US legacy airlines have had the benefit of sorting out many of their most burdensome cost problems via the Chapter 11 bankruptcy restructuring process.

It’s important to highlight that Southwest has never, ever gotten anywhere close to even contemplating Chapter 11. And that it stayed profitable through all manner of crises, including 9/11 and the global economic meltdown in 2008. That’s primarily because Southwest has for more than 40 years operated under the basic principles that costs must never exceed revenue; that if a route is a money-loser, it’s a route that should be eliminated or not pursued in the first place; that good relations with labor are essential; that consistent on-time performance is a must; and that managing customer expectations is critical. Most of the rest of the US industry has just come around to Southwest’s four-decades-long way of thinking in the last five years.

That’s not to say Southwest is perfect, or that it isn’t navigating a complicated transition from a one-size-fits-all low fares model to a more nuanced model that aims to appeal to more and more business passengers.

But Southwest has been operating as a true “business” for 40-plus years. The Dallas-based company’s financial ledger is better some years than others, based on external circumstances (such as fluctuating oil prices) and management decisions. But it is always profitable, every year, without exception. And it makes quick course corrections if it does not meet its own, high financial standards.

Until very recently, that simply could not be said about almost the entire US airline industry, particularly the big legacy carriers. It took billions of dollars of red ink and multiple journeys through the Chapter 11 process before the rest of the industry began seeing things as Southwest has from the start.

Discuss this Blog Entry 2

on Jan 27, 2014

Well-put. Southwest is a business that happens to run an airline...well.

on Jan 29, 2014

I enjoyed your article and agree strongly on all but one of your points. You as well as most of the press keep referring to SWA as a LLC, 'low cost airline'. I think this term is no longer appropriate or true in its application. SWA is the largest domestic carrier and when purchasing a ticket, may offer a low price 'seat' on some flights. But, on the whole is on a par and not that much different in fare structure to the other legacy carriers.

Please or Register to post comments.

ATWOnline Marketplace - Buy a Link Now
What's AirKarp?

ATW senior editor's blog

Blog Archive