November 28, 2001
| TOM BEARDEN: These
may be the toughest times the airlines have ever faced.
SPOKESPERSON: And due to increased security requirements, anticipate delays at security checkpoints.
TOM BEARDEN: Since September 11, revenues have plummeted. 100,000 employees have been laid off. Flight schedules cut 25% and more. Stock values went down 30% overnight, and stayed down. Darryl Jenkins runs the Aviation Institute at George Washington University.
DARRYL JENKINS, Aviation Institute: In the next couple years we'll probably see two to three of the top ten airlines file for chapter 11. Probably one of those will not return.
TOM BEARDEN: But one airline hasn't laid anybody off, hasn't cut any flights, and doesn't expect to.
SPOKESPERSON: Next in line, please. Next in line.
TOM BEARDEN: In fact, the company is hiring new employees, even talking about growth.
SPOKESPERSON: On 2873.
TOM BEARDEN: Dallas-based Southwest Airlines has long been a maverick, a company that frequently turns commercial aviation's conventional wisdom on its ear. Now it's doing it again. Jim Parker is Southwest's CEO.
JIM PARKER, CEO, Southwest Airlines: We made a decision that we were not going to reduce capacity. We were not going to furlough employees but rather we were going to fly our full schedule, fly all of our aircraft, not lay off our employees, and attempt to fly our way back to profitability.
TOM BEARDEN: Why did you make that decision when everybody else was pretty much going the opposite direction?
JIM PARKER: Well, we've never had an involuntary furlough at Southwest Airlines and it's really not a part of our culture. Some companies are built on a boom and bust mentality, and they kind of expect that in bad times there will be lots of layoffs. But for 30 years our cofounder and current chairman, long-time CEO Herb Kelliher, has preached the importance of managing our business in good times so that we could survive and prosper in bad times.
TOM BEARDEN: Preparing for hard times means Southwest has amassed a $2 billion cash cushion, now sitting in the bank. That gives customer service agent Craig Derrick confidence.
CRAIG DERRICK, Southwest Airlines: I worked for an airline prior to this, and have friends of mine who actually went to work for Northwest and also went to work for United. Both are unemployed right now. And I just... I can't tell you how fortunate I feel to be with such a company that has such strong backing and such caring for its employees, you know, from the get-go.
TOM BEARDEN: Southwest's management believes a major reason for their financial success is their cost structure. Southwest began 30 years ago as a low-cost, no frills airline. At first it flew mostly point- to-point in Texas, shuttling people between big and medium-sized cities. It's grown to be a national airline, but still has what is basically a linear route structure. Most other airlines fly people from smaller cities, or spokes, to a big hub airport, where they transfer to other planes for their final destination.
SPOKESPERSON: Flight 45 is available.
TOM BEARDEN: In addition, Southwest has never served meals or reserved seats in advance. That allows the airline to get planes back in the sky quickly, because aircraft sitting on the ground lose money. But airline consultant Mike Boyd believes the real reason for Southwest's success is its corporate culture.
MIKE BOYD, Airline Consultant: You go into some airlines headquarters and you'll see pictures of happy employees on the wall. You do the same thing at Southwest. The only difference is at Southwest they're not actors; they're real employees. Employees like working there. When you like working at the place you work, you do better... You do a better job for the customer.
SPOKESPERSON: Flying out of Gate C, right there.
TOM BEARDEN: Statistics back up the assertion that southwest has a happy workforce. The employee retention rate is 92.3%, and each of its 32,000 employees recently agreed to give back some of their pay this month. Some believe the September 11 attacks have triggered a fundamental restructuring of the industry. In August, Daryll Jenkins predicted that Southwest would be carrying more domestic passengers than any other airline within five years. Now he thinks it'll take just three years.
DARYLL JENKINS, Aviation Institute: The airlines have a major debt problem. Next year at this time the debt- to-equity ratios in the airline industry could be about 99% debt and 1% equity. They're borrowing money right now and they're borrowing money to cover losses rather than to grow, and that's the worst possible financial situation for any company to be in.
TOM BEARDEN: Jenkins says that puts stable, low-cost carriers like Southwest, Jet Blue, and others in a position to take over routes being abandoned by the majors. Gary Kelly is Southwest's chief financial officer.
GARRY KELLY, CFO, Southwest Airlines: If competitors are withdrawing service from markets, particularly in markets we serve, we'll be faced with demand by customers that exceeds the supply, exceeds in some markets, if indeed our competitors follow through with reductions that have been announced.
TOM BEARDEN: So why don't the big carriers go to a similar route system?
MIKE BOYD: Well, it's almost like asking, "Why didn't Greyhound go to Amtrak?" They're totally different systems. United Airlines, Northwest Airlines, they're network carriers that want to serve a wide range of communities. Southwest focuses on relatively larger communities, certainly relatively larger routes. They only fly one type of airplane and they want to stay in high-density markets. That's their strategy; it's a good one. But all airlines couldn't go to that. And a matter of fact, if they did, places like Lincoln, Nebraska, and Colorado Springs wouldn't have any air service at all.
TOM BEARDEN: Not everything is completely rosy for Southwest. Like everyone else, it lost a huge amount of business after September 11, and although its load factors are up, it's been forced to discount its rates. At the moment, the airline isn't making money, but does expect to return to profitability soon, perhaps by the end of the year. There is also uncertainty about the impact that any new federal security procedures might have, both in how much they'll cost and how they might affect the critical need to turn planes quickly.