CEO: Southwest's strategy shifting

Jun. 28--For 36 years, Southwest Airlines has pursued two basic principles. Rule 1: Keep everything simple. Rule 2: Don't do anything that violates Rule 1. The result has been an anti-corporate flying experience for passengers, with no frills, low...


Jun. 28--For 36 years, Southwest Airlines has pursued two basic principles. Rule 1: Keep everything simple. Rule 2: Don't do anything that violates Rule 1.

The result has been an anti-corporate flying experience for passengers, with no frills, low ticket prices and first-come, first-served seating.

But even the airline industry's most profitable carrier cannot escape the pressures that have bedeviled its rivals for years, particularly rising fuel costs and competition from other low-cost airlines. Part of the solution, Southwest says, is to pursue the higher-paying corporate passenger.

As a result, longtime customers may notice Southwest becoming more like every other airline, even as it strives to keep its distinctive flavor.

On Wednesday in New York, Southwest chief executive officer Gary Kelly told Wall Street analysts that the Love Field-based airline will have to do things in the future that it hasn't done in the past as it tries to dig out of a rut in its profits and stock price.

Those things could include international flying, first through partnering with other airlines, and then by itself. They could very well involve some form of assigned seating.

Southwest also is looking at selling products online and onboard, including a test of wireless services on some flights in 2008.

"For 36 years, we relied on a very conservative, focused and tried-and-true strategy of carrying passengers point to point, from A to B. There's been a beauty in that simplicity, as our history and the results attest," Mr. Kelly said in a speech to investment analysts in New York City.

"But necessity is the mother of invention, and this decade has presented us with the imperative to make some adjustments and to overcome record-high energy prices and more low-cost, low-fare competition."

At the start of this decade, Southwest was "not well prepared as a company to deviate from that very focused model," he acknowledged. "Since 9/11, though, we have been very busy transforming our capabilities."

Longer flights

As Southwest passengers have noticed, change has already begun. The plastic boarding passes, long a symbol of Southwest's simplicity and frugality, went by the wayside several years ago.

That change allowed Southwest to use airport kiosks and its Web site to let customers check in and get paper boarding passes. It lessened the load on ticket and gate agents, even as it helped the airline meet new security requirements to track customers and their bags.

Southwest had eschewed exchanging passengers with other airlines, fearing that it would slow its highly efficient airport operations. But it began code-sharing with ATA Airlines Inc. as part of a 2004 deal that gave Southwest an expanded presence at Chicago's Midway Airport.

Southwest made its reputation as a short-haul carrier focusing on overpriced markets, starting with flights June 18, 1971, between Dallas, Houston and San Antonio. Its first major expansion came when it duplicated its Texas service in California cities and in Phoenix in 1982.

But as Southwest expanded through the country, those average hauls got longer, as did the average trip by passengers.

In 1993, the average Southwest passenger flew 509 miles; by last year, the average trip had increased to 808 miles. In 1993, the average Southwest flight went 376 miles; in 2006, it flew 622 miles.

Southwest has pointedly not participated in most industry reservation systems. But in an effort to appeal more to corporate travel departments, Southwest last month announced it would begin selling its flights through the Galileo reservation system.

"The decade has been one of very dramatic change for our industry," Mr. Kelly said, "and seven years into it, Southwest is a very different airline than where we were in 2000."

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