I remain bullish on Southwest, but have a couple of concerns that may be a problem.
The weaker numbers of the past 18 months, I think, have largely to do with the fact that Southwest didn't lay off *anyone* after 9/11 and parked either no planes or a handful. Unlike JetBlue, which as a smaller carrier jumps into niches with a couple of daily flights and grows from there, Southwest hasn't been conquering new terrain since 9/11. They only added ORF in 10/01 because they had already made the commitment there.
Southwest's excellent personnel policies--actions that are consistent with good words about a "family"--have cost them some money since 9/11. It's money well spent that strengthens that culture for the future.
Hence the problem I see. Southwest requires 10 dailies from new markets on day one. That means that adding new markets is very expensive from a marketing and logistics standpoint. Southwest says that's why they haven't added markets since 9/11.
JetBlue will enter a new market with one or two daily flights: AirTran will enter with three to five. These two carriers can thus enter new markets with much less expense. They have thus chosen to grow aggressively in the past 1.5 years, which has been the biggest economic window of opportunity for low-fare carriers in history.
This window is not closing but its narrowing. The Cartel did not fight back for awhile. Now Song is up and running; AA
is taking out MRTC in some flights; UA
is planning a low-fare division (which I think will tank like Shuttle did, but that's another story); and US Airways has emerged from bankruptcy much leaner and meaner (though still not out of the woods). Life won't be as easy as it was for LCC's the past 18 months. LCC's will still grow to a much bigger share of USA air traffic than the 20 percent they have now, but they'll have to fight harder for a lot of it.
Southwest has mostly sat the past 18 months out by connecting dots. Now they have two well-established, growing competitors who are much more flexible, are not overextended, and still make money. AirTran, for instance, has seen its load factors go up a couple of percentage points over huge capacity growth since 2001--they're growing *below* demand. AirTran's experiment with JetConnect is succeeding so far, which means that the Atlanta hub is becoming even better utilized.
But, you say, FL
's CASM is 10 percent higher than WN
's. No problem. Here's where WN
's 10-dailies requirement comes in. As long as WN
ignores the Rochesters of the world and cherry-picks the Buffalo's, FL
can come into the Rochesters and charge a 10 percent premium for pax who are sick of driving down the Thruway. AirTran is raking in the $$ in Rochester as a result. (Raking it in in Buffalo too, I might add). Once AirTran adds transcons on its own (Ryan of course is a stopgap measure), their average stage length will increase, which will help reduce seat-mile cost.
But, you also say, the 10-dailies requirement is a key to WN
's 7.5 cent CASM. I say, this industry is about flexibility and creativity. WN
will need to figure out a way to drop to a requirement of 4-5 new dailies, without losing much cost advantage, if they want to stay far out front and grow well.
Finally, Southwest needs to figure out what the hell they want to do about New York City. Their biggest, maybe only, mistake of the last decade was not getting into JFK
while the getting was good. (That would have required serving BUF
, as our Congresscritters rightly demanded in exchange for JFK
slots, and WN
wouldn't have entered all those markets w/ 10 dailies at once). ISP
handles Long Island, but it's too far to be a high-volume NYC airport. NYC is a big gap in the map of the nation's largest LCC; they'll be at a disadvantage in the East as JetBlue and AirTran grow there. I don't know the answer, we've discussed to death the fact that the alternatives all stink (ABE
, SWF) or are NIMBY-restricted (HPN
Anyway, those are my thoughts on the matter, for what they're worth.