Southwest Uses the Stopwatch to Speed Up Service, Raise Profits

One in an occasional series focused on efficiency

Equipped with stopwatches and clipboards, teams of Southwest Airlines Co. employees are moving into the carrier's largest airports to time almost everything workers do, from helping passengers use a ticketing kiosk to pushing wheelchairs down the jet bridge.

They're also tracking how long customers wait for boarding passes, flights and luggage, and how well flights stay on schedule.

It's the kind of work many companies would leave to outside consultants.

Southwest, one of the world's most efficient airlines, has been quietly using its own experts to figure how to be more efficient.

This month, it will bring Operational Excellence - or Rx for short - to Dallas Love Field.

It's a critical effort for the Dallas-based company, which has grown into the world's largest carrier of passengers but faces increasing cost pressures and a stagnant stock price.

With any growth spurt comes growing pains, and those pains are beginning to show.

Southwest continues to have one of the best records for on-time performance, but its numbers have slipped - albeit slightly - in recent years.

So has its record for mishandled bags.

It's a trend officials at Southwest don't like.

"After 9/11, we just got into survival mode, but competition is heating up again, and we need to keep our edge," said Greg Wells, Southwest's senior vice president of operations.

Alan Sbarra, an airline consultant based in San Francisco, said Southwest's growth has added complexity to its network, making efficiency even more important.

"It's harder and harder to squeeze out nonlabor costs," Mr. Sbarra said.

Attention to detail is part of the game in the airline industry, which has struggled to find firm financial footing since 9/11.

Jim Higgins, an airline analyst with Soleil Securities in New York, says the industry did so much cost-cutting after 2001 that finding major cost savings could be difficult.

"Southwest is already so efficient that they know there are no home runs left," Mr. Higgins said.

"They're going to be looking for every needle in every haystack."

Southwest has been profitable for 33 years, but profit is becoming more difficult to eke out with the price of fuel so high.

For years, Southwest maintained a valuable hedging program that locked in fuel prices below market value. But the hedges in place between now and 2010 are for fuel at much higher prices.

The average fuel cost per gallon jumped nearly 50 percent in 2006 over 2005, and Southwest expects to pay $300 million more for fuel this year than it did in 2006.

"Over the long term, it's imperative for them to get their costs down," said Jim Corridore, an airline equity analyst with Standard & Poor's.

Field testing

The Rx program was first tested two years ago after some managers expressed concern about Southwest's plans for major expansions in its Chicago, Phoenix and Las Vegas operations.

There was excitement about the growth but also unease.

None of the managers had headed an operation with more than 200 flights a day. Because Southwest flies point to point - unlike its competitors, who use traditional hub-and-spoke networks - the company didn't have a good model for a large operation. Managers also knew that much of the growth would have to be handled using existing staff.

The airline's growth spurt wasn't the only concern.

Southwest's longtime rivals have slashed costs through employee concessions or bankruptcy proceedings. Younger low-cost carriers have newer equipment and lower maintenance costs, which make them formidable competitors.

"We were starting to worry that with all those things happening, we wouldn't be able to hang on to our efficiency and customer service," Mr. Wells, the Southwest senior vice president, said.

Southwest's first target was Phoenix's Sky Harbor International Airport.