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.