N200WN From United States of America, joined Feb 2005, 784 posts, RR: 7 Posted (7 years 11 months 2 weeks 1 day ago) and read 1752 times:
I had this imbeded in another thread and thought it should have its own thread before I continue.
This is from a 1995 "Aviation Week & Space Technology" interview with Herb Kelleher that I thought some of you may enjoy. I'll post some of the questions and answers over the next few days. It's interesting to relate some of the questions to today's much different environment.
After a brief story, the interview starts with:
AW&ST: Southwest Airlines has been the market scourge in the first half of the 1990's...
Kelleher: You're making me feel like the Ebola virus, for crying out loud.
AW&ST:...looking beyond 1995, however, it's hard to find many high-density markets that would lend themselves to Southwest-style high-frequency service that do not already enjoy some form of low-cost airline transportation. Is Southwest nearing a plateau in its evolution?
Kelleher: I know you're expecting me to say "yes," but it's "no." Let me explain the reason. When the Transportation Dept. issues a report discussing Southwest's dominance in the top 100 U.S. markets, most people conclude that we only go into markets that are very dense.
What people don't realize is that Southwest Airlines made those markets dense with low fares and high-frequency service; they weren't that way when we went into them. When we went from being an intrastate airline to an interstate carrier in 1979, markets that nobody ever thought about started popping into the top 200. There are a lot of other markets like that in the U.S., and they're all growth opportunities.
Plus, there are some areas of the U.S. we have not even touched. They are now accessible to us because Southwest has a nationwide system in which we are the dominant carrier in a lot of cities. So we can easily provide service between our existing destinations and new markets.
AW&ST: Have the criteria changed concerning the cities you choose to add to your route system, or is it in the process of changing?
Kelleher: Not at all. In fact, we have a formula that dates back to Southwest's beginnings, and it has been refined over the years through experience.
We'll look at any given city pair and estimate our market potential, measured by the number of passengers Southwest can carry. We'll establish within 5% where we will be within one year, based on historic traffic. But that's just the beginning. If the existing fare structure is 70% higher than ours, and we reduce the fares by 70%, effectively we have created a market of 400,000 passengers a year. Then if you add six additional on-time round trips, the market expands even more. So in the end, it's not really a 100,000-a-year passenger market, it's half a million. We repeat that formula over and over.
After we established our Oakland-Burbank route, it soared to the 25th largest passenger market from the 179th in less than a year. Another example is our Chicago-Louisville route. Thirty days after we opened it, the market tripled in size.
N200WN From United States of America, joined Feb 2005, 784 posts, RR: 7 Reply 1, posted (7 years 11 months 2 weeks 1 day ago) and read 1737 times:
AW&ST: What you're telling me is that there are no U.S. city pairs where your formula cannot be applied successfully.
Kelleher: Theoretically, there are not. At the same time, part of our success formula is pinpointing where we can make the most money. When we deploy a $30-million aircraft in the interests of Southwest Airlines employees and shareholders, we put it where it will make the most profit in the shortest period of time.
Before we ordered new 737-700s in 1993, I told our schedule planning specialists to develop a study of our potential for expansion through 2003. When they got to a requirement of 212 additional new aircraft, I said, Stop! Stop! There's no need to go any further.
We've got routes right now that are operating at 80% load factors; they need more service. There are also lots of places where we can connect the dots within our route system. The least of my worries is where we will expand.
AW&ST: What's your biggest worry?
Kelleher: The biggest of my worries is that we'll probably have to order more airplanes to accomplish it.
N200WN From United States of America, joined Feb 2005, 784 posts, RR: 7 Reply 3, posted (7 years 11 months 2 weeks 23 hours ago) and read 1718 times:
AW&ST: Do you have any such plans?
Kelleher: None whatsoever, but with the way things happen in the airline industry, that could change overnight. That's what happened in 1990 and 1994, when the rest of the industry was still in a depression and we expanded faster than ever. Midway Airlines ceased operations, and we took over Midway Airport and quickly became the dominant carrier. USAir pulled out of six cities in California, and we went into those places, lickety-split.
AW&ST: How concerned are you about the rapid progress some other major carriers are making in reducing their costs per available seat mile (ASM)?
Kelleher: There's no question that we are in a cost war, but the numbers being batted around in the press are deceiving. Let's take Delta Air Lines' Leadership 7.5 program as an example. Delta is doing a terrific job of cutting its costs so that by 1997 they will be at 7.5 cents per ASM.
Some people are saying, "Holy mackerel, Herb! Delta is closing the gap with Southwest." People forget that Delta's average stage length is 901 mi. If our average stage length were 901 mi., or nearly double what it is now, our actual costs would be 4.6 cents per ASM.
To underscore the difference stage length makes, consider our longest nonstop route, which is Nashville to Phoenix. That's 1,440 mi. We probably operate that route at about 4 cents per ASM, versus our systemwide cost of 7.1. Nobody has to worry about Southwest Airlines' costs.
N200WN From United States of America, joined Feb 2005, 784 posts, RR: 7 Reply 4, posted (7 years 11 months 2 weeks 10 hours ago) and read 1669 times:
AW&ST: Was that a factor in your decision to order the long range-range 737-700? Or to put it another way, do you intend to increase your average stage length much beyond its present distance as part of your cost-reduction strategy?
Kelleher: The answer to the first part of your question is "no," that was not a factor in our selection of the 700. While that aircraft can fly nonstop from New York to Los Angeles with a full load, we don't intend to fly transcon.
While we are working toward a longer average stage length, what we're talking about is flying longer haul as an adjunct or an add-on to our basic market niche.
Most of the outside world doesn't understand that our average stage length has increased to 394 mi. from 375 in the last six months.