Purple Drank

Wall Street Journal
By SCOTT MCCARTNEY

Southwest Airlines is growing up—and running into many of the same problems that have debilitated mature airlines and maddened customers in the past.

Federal restrictions on Dallas Love Field are ending, allowing Southwest, already the biggest hauler of domestic passengers, to fly anywhere it wants from its home airport instead of just to nearby states.

That means new competition for American, United, Delta, JetBlue and Spirit airlines on some of the busiest routes in the country. On Oct. 13, Southwest will begin nonstop flights from Dallas to Denver, Las Vegas, Los Angeles, Orlando, Baltimore, Washington's Reagan National and Chicago's Midway Airport. On Nov. 2, Southwest will add nonstop service to New York LaGuardia, Phoenix, Orange County, Calif., San Diego, Tampa, Fort Lauderdale, Atlanta and Nashville.

But Southwest is grappling with its own issues, like the highest rate of mishandled baggage and worst on-time arrival performance among major airlines. Its biggest labor unions, including pilots, flight attendants, mechanics, baggage handlers and customer service staff, are all in lengthy and sometimes bitter contract negotiations.

It has to work harder with a bigger workforce to maintain its folksy culture, good service and passenger goodwill or risk ending up with the grumpy employees and indifferent service that have befallen other carriers. At the same time, Southwest has been busy with new international expansion and the final steps in its acquisition of AirTran Airways.

"A lot of things have changed. Our position in the industry has changed. Some things within Southwest have changed," Chief Executive Gary Kelly says.

One thing that he says won't change: Southwest will remain the only U.S. airline to allow two bags checked free.

Southwest Airlines CEO Gary Kelly has overseen several changes since taking the company's reins in 2004. He also insists Southwest's legendary customer focus hasn't changed. Although it has recently slipped to No. 2 behind Alaska Airlines from its longtime perch at No. 1, Southwest still has remarkably few complaints filed with the Transportation Department, given its poorer reliability over the past year. Passengers continue to report fun stunts by flight attendants and fair resolution of complaints and problems.

Over the past 10 years, Mr. Kelly has transformed Southwest from the low-fare upstart that it was under legendary CEO Herbert Kelleher, whose unique premise of simple operations at low prices with good-humored service spawned many imitators and a discount airline revolution world-wide.

Now Southwest has more flights hopping around the country than any other carrier. While Mr. Kelleher resolutely shunned battles with entrenched airlines at congested fortress hubs, Mr. Kelly has taken Southwest to the country's biggest airports. Mr. Kelly, upfront with employees but not the wisecracking showman of Mr. Kelleher's prime, has nearly doubled Southwest's seat capacity.

This fall, Mr. Kelly is repainting Southwest jets with a cleaner look as well. He likens the change to repainting a home. "It's the same home; it's got the same plumbing and foundation," he says.

Southwest will begin new nonstop flights from Dallas Love Field to seven destinations on Oct. 13 and eight more on Nov. 2.
Mr. Kelly reflected on the changes at Southwest, and the challenges ahead, recently at an annual aviation breakfast sponsored by the North Dallas Chamber of Commerce that I moderated.

Southwest began scheduled flights in 1971 within Texas. When Dallas-Fort Worth International Airport opened in 1973 to replace smaller Love Field, which is closer to downtown Dallas, Southwest refused to move. To protect the fledgling airport, Congress restricted big-plane flights from Love Field to states bordering Texas, and later allowed a couple of others nearby.

Challenging the restriction known as the Wright Amendment was one of Mr. Kelly's first big acts as CEO. President George W. Bush signed a compromise in 2006 ending the restrictions after another eight years.

Ahead of the big change at its home airport, Southwest made a major schedule change in August to try to fix its on-time arrivals problem.

In the 12-month period ended in July, the most recent reported by the DOT, Southwest was last in on-time performance among major airlines. Only 71.1% of its flights arrived at the gate within 15 minutes of scheduled time—the DOT's definition of on time. It also ranked last among big airlines in baggage handling.

Flying into far more congested hubs, Southwest has struggled. In July in San Francisco, for example, only 44.9% of Southwest flights arrived on time, compared with 75.7% for United Airlines, the largest carrier there.
The August schedule change added more time on the ground between flights to accommodate fuller planes and more connecting passengers. So far, so good. In September, Southwest's on-time rate ranked third, close behind Alaska and JetBlue, according to data from flight-tracking firm FlightStats.com.

Southwest employees, among the most productive in the airline industry at seat capacity per employee, have been complaining that the company has pushed too far and has upset the culture by proposing more outsourcing of jobs and more part-time employees.

Retired pilot Howard Randall, who still keeps in touch with friends working at the airline, says employees chafe at more decisions being made at headquarters than in the field. "Under Herb, the passenger was king, employees were treated with respect and paid well," he says. "Now it seems [profits are] king and employees and passengers just required evils to produce revenue."

Mr. Kelly says Southwest is no different today in its priorities. "The culture is real. It's embedded," he says.

Rising fuel prices, along with labor costs, have pressured Southwest. Its per-seat costs to fly an average 1,000-mile trip were higher than those of US Airways, Frontier, JetBlue, Alaska, Allegiant and Spirit airlines in 2013, according to a study by consulting firm Oliver Wyman.

Southwest has had to push fares up sharply to stay profitable. Its per-seat revenue on the same 1,000-mile trip length was higher than that of every airline except Delta. Its average one-way fare in the second quarter this year was $163, up from $88 in the second quarter of 2004.

Mr. Kelly says Southwest monitors competition closely and it still has the lowest price in any given market about 50% of the time. That percentage is largely unchanged over the past 20 years, he says.