Speeches and Presentations from Southwest Leaders
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For a relatively small industry, airlines get a lot of attention. And since accepting the position of Southwest Airlines CEO six months ago, the spotlight has been on Gary Kelly.
“The first day that I took office, I was in the news. The second day, I was in the news. The third, fourth, and fifth days, I was in the news. On the sixth day, I didn’t make the news, and I wondered what I was doing wrong!”
Kelly began his January 25 talk to the Dallas CPA Society’s annual meeting with this humorous anecdote. Certainly, Southwest Airlines is riding a wave of media attention. From the announcement of the airline’s first code-share agreement with Indianapolis-based ATA, to the suggestion that Dallas consider repealing the Wright Amendment, it has definitely been a wild ride.
“It’s been a fun six months, with a lot of excitement, and we have enjoyed tremendous success,” Kelly said.
While the airline industry posted record losses exceeding $32 billion, Southwest Airlines announced a yearend profit of $313 million, marking the airline’s 33rd consecutive year of profitability – a feat unheard of in an industry that has cumulatively lost more than it has made.
“The fact that we were the only major airline to turn a profit in 2004 is extraordinary,” Kelly said. “Over the last 12 to 18 months, we have watched the price of energy go up. With 15 to 20 percent of our costs committed to jet fuel, thankfully, we had the wisdom to hedge.”
But, Kelly explained that it takes more than just an enviable hedging program to be successful in today’s market.
“What’s interesting about Southwest Airlines is our tremendous cost advantage. No other airline operates like us. We have the lowest costs in the industry, and the number one criteria for choosing an airline is price. By my calculations, that puts us in a pretty good competitive position,” he said.
Southwest’s cost advantage allows the airline to enter a market and immediately lower fares and increase airport traffic, a phenomenon the U.S. Department of Transportation (DOT) dubbed the “Southwest Effect” in a 1993 study.
“We simply have a different operating philosophy,” he said. “We utilize our aircraft more efficiently than any other airline, and, more importantly to our Customers, we provide a quality product: Safety, Customer Service, ontime performance, a friendly fare structure, and no change fees.”
With a rock-solid product and plenty of growth opportunities available, Kelly expressed his confidence that Southwest Airlines can continue to churn out profits.
“Chicago Midway is our primary focus right now,” Kelly said. “We recently acquired six additional gates at Midway through our code-share agreement with ATA, bringing us to a total of 25 gates. Those additional gates will allow us to increase our daily departures from 145 to 175 by April of this year, with plenty of capacity to add flights on top of that.”
“Philadelphia is our newest city, and the first major city we opened following 9/11. It is the nation’s 4th largest metropolitan area, but ranked only 18th in air traffic because of high fares and an underdeveloped airport. Since Southwest entered the market just seven months ago, fares have dropped by as much as 60 percent, and traffic has increased more than three fold.”
“We recently announced that we will begin serving Pittsburgh in May, and we are very excited about that. Pittsburgh has a wonderful airport with great Customer amenities, and it is very well suited to our operating structure.”
While profitability and growth always garner praise, Kelly joked that he heard a few gasps the first time he mentioned repealing the Wright Amendment.
But for Southwest Airlines, repealing the Wright Amendment is no laughing matter.
As a major taxpayer and corporate citizen of Dallas, Southwest Airlines has a vested interest in the economy of North Dallas.
“Despite our growth and success in other cities,” Kelly said, “We’re actually shrinking in our home town. We have the fewest number of flights at Love Field than we’ve had in years.”
At one point, Southwest Airlines operated 145 daily departures from Love Field. Today, the airline operates 123 daily departures.
“Post 9/11 effects on the airline industry were enormous. We were already in a recession and in the wake of the stock market burst – we took a hit; especially, our shorthaul traffic,” the type of service Southwest offers from Love Field.
“The perceived security inconvenience drove people away from the airports and into their cars.”
“In truth, the situation is better and more efficient than it was prior to 9/11 because of automation,” Kelly said. “We’ve automated the checkin process, installed self-serve kiosks in our airports, and added security lanes to speed up security screening.”
“Still, shorthaul traffic has declined.”
So why not offer more longhaul flights at Dallas Love Field? The Wright Amendment won’t allow it.
Originally passed by Congress in 1979, the Wright Amendment restricts aircraft with more than 56 seats departing out of Love Field from traveling beyond Texas and the four contiguous states of New Mexico, Oklahoma, Arkansas and Louisiana. The Shelby Amendment, a provision to the Wright Amendment passed by Congress in 1997, added Alabama, Kansas, and Mississippi to that list.
“While we are hopeful for growth at Love Field, unless we can adjust our service to suit the needs and desires of our Customers, we don’t expect to see any change.”
Dallas Love Field is a small airport – never intended to be as big as D/FW– yet some local citizens have concerns about growth. Kelly reminded the audience that measures have been put in place to limit the airports’ growth and protect the surrounding community from problems such as noise, pollution, and ground congestion.
The Dallas Love Field Master Plan, designed by the city of Dallas with environmental and socio-economic impacts in mind, allows for a maximum configuration of 32 gates. By contrast, D/FW currently has more than 150 gates with plans to add 23 more gates by the end of 2005.
“The wisdom of the Master Plan takes care of that,” he explained. “The fix is there. Where we fly should be irrelevant.”
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