![]() ![]() ![]() Today, Delta Air Lines has already surpassed it in terms of profitability American and United are hoping to catch up soon. Just a few years ago, Southwest Airlines was the clear king of the U.S. (These slots were sold as part of American's merger with US Airways.) At LaGuardia, Southwest will now operate 33 daily departures, more than enough to efficiently utilize its fixed costs on the ground. In fact, on the same day that Southwest announced these service cuts, it also announced that it had acquired six new slot pairs from American Airlines at New York's LaGuardia Airport. Southwest will benefit by redeploying capacity from these smaller cities to large markets where it can operate more efficiently and thereby mount a stronger challenge to the legacy carriers. For Southwest Airlines, operating three to four daily flights to a particular city means that it's not getting the most it can from its investment. In other words, there's a certain minimum of cost involved in setting up in a new city. At any airport where it operates, Southwest needs ticket agents, baggage handlers, and gate agents, as well as gate space and check-in counters. It's not very efficient for airlines to operate in cities where they have very few flights. ![]() In Branson, it offers just three daily departures in Jackson, it has four daily departures and it operates three daily departures in Key West. The three cities Southwest is leaving are some of the smallest in its network. Southwest's low-cost operating model is therefore hard to implement in small markets. By contrast, Southwest only flies mainline aircraft: in fact, it's in the midst of phasing out all of its aircraft with fewer than 143 seats. In order to match capacity to demand, legacy carriers such as United and Delta hire regional airlines to fly small planes between smaller airports and their hubs. As recently as 2007, Southwest's full-year load factor - the percentage of seats sold - was just 72.6% for the past two years its load factor has risen to over 80%. With higher fuel prices, it's important to keep airplanes full (without discounting tickets too much). However, the economics of flying to smaller cities has changed in recent years. More recently, Southwest bulked up through its acquisition of AirTran Airways, which gave it access to a variety of new cities. Paul, which Southwest had historically avoided. Some of this growth has come organically through its entry into major markets like New York, Boston, Denver, and Minneapolis-St. In recent years, Southwest Airlines has expanded its route network significantly. This will free up capacity for more promising markets with plenty of passenger traffic, like New York. Southwest's management has stated on multiple occasions that it will hold capacity roughly flat in 2014 in order to focus on completing the integration of its AirTran subsidiary.Īs part of that plan, the company recently announced that it will pull out of three smaller markets: Jackson, Miss., Branson Mo., and Key West, Fla. As a result, it's looking to retrench to boost its earnings. However, today Southwest faces tougher competition. With lower costs and friendly service, Southwest had a lot going for it. It terrorized legacy carriers like Delta Air Lines (DAL) and United Continental (UAL) by constantly pushing further into their turf. For most of its history, Southwest Airlines (ticker: LUV) has been an aggressive growth company. ![]()
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