Fully cognizant of the long-term competition from ultra-low-cost carriers like Frontier Airlines, Southwest Airlines CEO Gary Kelly said Thursday that the company is looking to lower its operating expenses even further to be able to match or beat the cost of flying on those airlines.
Southwest, the No. 2 carrier at Denver International Airport, won’t try to compete directly on ticket price, said Kelly, who sat down for an interview while in town to celebrate the 10th anniversary of the airline bringing service back to the Mile High City.
But as Southwest will continue to be the only major U.S. carrier that does not charge extra for checking bags, Kelly believes it can offer the lowest price when travelers factor in the fees they will pay on the lowest-cost airlines for everything from seat selection to beverage purchase to carry-on luggage as well.
But as Southwest will continue to be the only major U.S. carrier that does not charge extra for checking bags, Kelly believes it can offer the lowest price when travelers factor in the fees they will pay on the lowest-cost airlines for everything from seat selection to beverage purchase to carry-on luggage as well.
And if it increases its operational efficiencies enough to do so, he believes Southwest can continue to increase its business by promoting its costs even as competitors are trying new tacts to own the low-cost space in the market.
“Over the next 18 months, I don’t think there is a really dramatic impact in the short term for that type of competition. But over the long term, we would be foolish to ignore any competition,” he said.
“We need to do everything we can to make sure our costs are not higher than theirs. It’s hard work.
It’s very hard to do ... Nonetheless, we still compete. And we still have to find a way to make sure that we are the low-cost provider. And they’re bringing really low cost and significant cost competition to us.”
For Southwest Airlines, competing on cost isn’t a point of pride. It’s an essential trait and is arguably the main reason that the Dallas-based airline was able to get a hold in the Denver market and grow here more quickly than anywhere else in the country.
Reopening operations at DIA in 2006 — 20 years after it pulled out of the old Stapleton Airport — Southwest began its new operation with 13 departures a day to three cities. But when the Great Recession hit and many of their competitors began to charge ancillary fees and tinker with new business models, Southwest’s business soared, especially here. Kelly attributes it to winning customers from other airlines.
Today Southwest holds a 30 percent share of DIA passengers and will offer 198 daily departures to 62 destinations by this summer. Denver is the fourth-largest market out of the 97 cities to which the airline flies, and Southwest added more flights at DIA than any other carrier in 2015.
Kelly said Thursday that the company will add 100 jobs in Denver during the first quarter of this year to keep up with the growth. But he acknowledged too that to continue to grow here, the company will have to take steps to find more efficiencies in its operations — without cutting employees or salaries, he emphasized.
One of those steps already is underway. By updating the fleet recently to include thinner seats, Southwest found that it could add one more row to each of its planes. Now it flies 143-passenger planes, up from 137, and its per-passenger costs for flights are dropping, Kelly said.
Another will come as Southwest finishes restoring some of the fleet that it inherited with its acquisition of AirTran. Typically, 93 to 94 percent of its 700-plane fleet is in the air on any given day, but that number has been lower lately. Once all of the planes are in the air consistently, per-plane operational costs will decrease, Kelly said.
But more can be done, he added. There remain opportunities to minimize ground time and to streamline supply-chain management. And there are further technologies to be updated, such as the way the airline has replaced the 50-pound flight manuals that all pilots were required to bring on flights with iPads storing the same information. “The main thing I would strive to do is to keep our costs level,” Kelly said.
While Southwest officials are doing all of this, they are also studying how to increase international departures from DIA. Currently, the airline flies non-stops just to three locations in Mexico from the airport, but it believes there are a lot more opportunities in Canada, Latin America and the Caribbean, Kelly said.
In fact, DIA CEO Kim Day asked Kelly about international expansion shortly before she participated in a ceremony honoring the 10th anniversary, he said.
While he would not commit to particular international destinations from Denver yet, he said more news is coming in the next year.
“International is important to Denver,” Kelly said. “Our view is south.”
(Ed Sealover - Denver Business Journal)
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