Southwest braces for turbulence as it turns 30
Southwest braces for turbulence as it turns 30
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Reuters Business News
4:16 p.m. 06/26/2007
By Chris Reiter
NEW YORK (Reuters) - Southwest Airlines Co. (LUV) once seemed impervious to the turbulence that buffeted other U.S. airlines, but on the eve of its 30th anniversary as a public company, the first and still the biggest U.S. low-cost carrier looks vulnerable.
Big carriers like Delta Air Lines Inc. (DAL) have cut costs in bankruptcy, low-fare competitors like JetBlue Airways Corp. (JBLU) offer unmatched perks such as live television, and Southwest's fuel hedges no longer provide the same level of protection from high fuel costs that they once did.
Southwest, which still has lower costs than most of its rivals and an unparalleled track record of profitability, is weighing responses that could include slowing fleet expansion, partnering with other carriers, and pursuing new sources of revenue such as selling hotel rooms through its Web site and offering in-flight Internet access.
"There's a transformation process under way," said Chief Executive Gary Kelly, speaking in New York at the Fortune Leadership Forum on Tuesday. "It's an intense time. I don't think our officers have ever worked harder."
More details of its plans are expected Wednesday, when the company hosts an analyst conference. Southwest, the sixth-largest carrier in the U.S. in terms of passenger traffic but the largest by market value, declined to comment on the plans beforehand.
The changes under way at the Dallas-based company, which Kelly says has never laid off staff or cut pay, could challenge the cozy relationship between management and labor. A committed workforce has been credited with fueling Southwest's strong customer satisfaction and earnings.
NO LAYOFFS
"They have a pretty high commitment to not laying off employees and that is challenging right now with all the automation and growth slowing down in the industry," said Jody Hoffer Gittell, a professor of management at Brandeis University and author of the book "The Southwest Airlines Way."
"It is critical to their culture to avoid layoffs as long as they can. That's a rough spot they're going to have to deal with," she said.
Southwest works hard to maintain its fun, quirky corporate culture. Kelly said in the hiring process, the company asks applicants to tell a joke.
But Wall Street lately has not been laughing. Concerns over slowing growth and uncertainty over how the company will react have weighed on Southwest's shares. Over the last 12 months, the shares have fallen about 10 percent, including a 2 percent drop Tuesday, while the Amex airline index (XAL) is largely unchanged.
The current struggles and the short-term view of many Wall Street investors has led some analysts to hypothesize that Southwest may be better off as a private company.
In April, CreditSights analyst Roger King said a leveraged buyout of Southwest would be a "no-brainer" to finance, but noted that the company would need to shift its philosophy "180 degrees" to accept it.
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