Love Triangle

March 1, 2004

It started over 30 years ago with a simple drawing of a triangle on a cocktail napkin; today Southwest Airlines, headquartered at Love Field in Dallas, is the 4th largest major airline in the US.

March 2004

With his entrepreneurial spirit, attorney Herb Kelleher got together for cocktails with Texas businessman Rollin King , to discuss the first three cities (Dallas, Houston and San Antonio) they would fly passengers to;and Southwest Airlines, "triangle of love" became a reality. Keeping their focus simple, the rest is history as they say. Get your passengers to their destinations on time, make sure that they are paying the lowest fares, and do it all while having fun. Southwest continued to add triangles to their flight pattern until it finally flew beyond the Texas borders to serve a total of 58 cities in 30 states. When you take a look at Southwest's mission statement, which includes the phrase "the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit," its employee promise declaring "above all, employees will be provided the same concern, respect, and caring attitude within the organization" and add the fact that Southwest is based at Love Field, the "triangle of love" becomes more apparent.What's Fueling Southwest? Fuel management at Southwest Airlines is broken up into two groups: fuel purchasing and fuel operations. "The way we look at it is our fuel purchasing team buys the fuel and then ships the fuel to the airport, then it's our responsibility to store the fuel and see that it gets to the aircraft clean and dry. That's our primary goal," states Glenn Hipp, Director of Fuel Operations. Generally the airlines don't own their own fuel farms (fuel storage facility), however, at Southwest, they sometimes do. Southwest has four fuel farms: three in Tulsa, Oklahoma; Burbank, California; and Houston, Texas and one under construction in Sacramento, California. With a definite tone of percipience, Hipp reasons, "Why pay someone else rent when we can own the primary airline storage facility, lease space in it to other carriers to store their fuel and reduce all of our overall costs." Certain parameters are required by Southwest of both the airport and the carriers to uphold the mulit-million dollar investment. The first is that the airport agrees that Southwest's will be the only facility at that location. The second is that rather than having a fixed cost, the carriers cost for fuel per month, including Southwest's, will float depending on the expenses incurred at that facility. The third is the cooperation of the other carriers serving the airport. Though fuel prices are going up, making it problematic for all of the carriers, Hipp notes that Southwest has an advantage with it's strong hedge position and fuel purchasing folds looking for spot purchases out in the market. In today's economy the practice of hedging can only work if you have credit and capital. Unfortunately, there are a number of carriers right now with neither the credit nor the capital who cannot hedge, hence paying much higher costs. As Hipp states, "It's the first time in my career the fuel prices skyrocketed at the same time the economy tanked for the airlines and they just didn't have the money they needed to hedge." Hipp is confident that fuel prices are going to come down in the summer, nonetheless he believes it has been an unusual year for fuel prices and has been surprised at the direction of the market. According to Hipp, his fuel operation group's biggest contribution to the success of Southwest was a major transition from hydrant trucks to stationary hydrant carts beginning in 1996. Compared to fueling trucks, the hydrant carts are more cost effective when it comes to maintenance, more practical when it comes to saving time and safer because there are no fuel trucks requiring registered drivers and vehicle insurance, driving from one plane to another. The stationary cart also gives the baggage handlers the ability to operate unhindered by the presence of a fuel truck in the vicinity. Southwest has a homogenized fleet of 737s that always park in the same spot, thus utilizing the carts to a better advantage than other carriers can. In addition, almost two years ago, Southwest Airlines fuel operations was instrumental in getting manufacturers to improve the carts and find a way to automate the information from the cart and transmit that information back to the base station. "We went out to the manufacturers and said we are going to buy 100 carts. We said here are the things we have to have. So they got very creative. I don't want to say we changed the industry for carts but we definitely came up with a new design that is specific to Southwest, and it's very popular," states Hipp.
Build it and they Will Come Most major airports were built after World War II making the original existing fuel storage facilities inadequate and risky, and creating a dilemma or, depending from which vantage point it is viewed, an opportunity for airlines, airports and oil companies. As Hipp adroitly points out, "It's way outside the realm of what these small operators can provide in capital for fuel storage facilities." Owing to this, departments like Hipp's have had to carefully scrutinize and determine where they need additional storage, at what capacity to build it appropriate to increased activity at that particular airport and how to build it cost effectively. Another issue that Hipp and his counterparts are facing that directly affects fuel purchasing and hedging is the question of future storage and whether or not to build a facility larger than necessary. "I will tell you that we have several locations, probably more than ten, where the fuel storage at the airport is currently inadequate and we are actively working to figure out how to solve that problem." says Hipp. "How to either increase the existing fuel storage or replace that fuel storage. And should [it] be replaced by the airport, by the fuel contractor, by the Oil Company or by Southwest?"
Southwest Airline's mechanic, Trey Fricks, is in the process of scrapping out an old electric lavatory vehicle.

Fuel consortiums have been a very popular methodology to build storage facilities, unfortunately many carriers are no longer in a financial position to be able to do this. Southwest has the ability to make the capital investment in the infrastructure of fuel storage facilities that are built and operated for the mutual benefit of everyone on the airport and has stepped up to be the banker for some of these facilities where it makes sense. "Our primary objective is to get it built and then secondarily how do we do it cost effectively," declares Hipp.

One of the new Southwest Airlines stationary fueling carts.

Out with Jet A, in with??
Glenn Hipp and Larry Laney, Director of Ground Support at Southwest, remember the days when fueling GSE was less complicated and less expensive; the days when Jet A not only fueled jets but just about everything else on the ramp. Those days are gone. "In 1999," Hipp claims, "The Environmental Protection Agency said you can't do that anymore, because jet fuel could have a very high sulfur content so you have to switch to diesel;it was problematic to the industry." Indeed, the EPA targeted airports for more aggressive emission control programs given the fact that the air pollution emissions were growing as airports continued to expand to meet the increasing travel demand. It was determined that GSE represents one of three (aircraft and ground access vehicles being the other two) groups of mobile emission sources that contribute a small but significant share of the hydrocarbon (HC), carbon monoxide (CO), oxides of nitrogen (Nox) and particulate matter (PM) emitted in metropolitan areas.

With no designated diesel trucks or diesel storage at the airport, switching from Jet A to diesel was much easier said than done according to Hipp and Laney and they had to work very hard to figure out how to make it work economically. "The airlines were left in a kind of predicament figuring out how we are going to get diesel fuel [on the ramp] and how we are going to accommodate these rules," says Hipp. "We scrambled to get everybody moved over to diesel as soon as we could, then almost simultaneously the switch started over to electric."

Allied Aviation inspects carts for Southwest; from left to right are Joe Lombard, Jim Cathey, and James Mcclellan.

The majority of conventionally powered GSE can be either converted to or replaced by GSE powered by alternative fuels such as LPG, CNG or electric. Southwest opted to go electric due to a number of factors. Besides getting a "big bang for their buck" by electing to go electric, Laney stated that rather than switch to the new generation gas engines that have catalytic converters, it made better sense to go with electric because the majority of the GSE that runs the most hours could be converted. Both Laney and Hipp continue to work to improve the electric technology. "There is a lot of engineering that goes into it," says Hipp. "You need a lot of power. You have to have these really expensive and large recharge stations to recharge the batteries." In trying to find a way to do this economically as well as environmentally, Laney is currently working with manufacturers of fast charging equipment and batteries such as ETEC (Electric Transportation Engineering Corporation), Aerovironment, Inc and Excide, to discuss improving the technology.

Spread the Love
When I walked through the doors at Southwest's Headquarters, I thought they were giving tours to a group of students because everyone was wearing jeans. I soon found out that this is Southwest's dress code for its employees everyday. Why? Because Herb Kellerher told them that if they kept service at a certain level for an extended period of time, they would be rewarded. As an organization that has won the Triple Crown (best on-time record, best baggage handling and fewest customer complaints) more than 30 times, boasts a low attrition rate, is environmentally proactive and reported its 31st year of consecutive profitability (a feat unmatched in the airline industry), Southwest Airlines has every reason to spread the love and continue the "affair" it's having with its customers and its employees.

Glenn Hipp says it best, "I am really proud to be a part of an industry that is changing so rapidly and I feel like we are really out in front of the group doing that."

Homegrown: Colleen Barrett, President and COO of Southwest Airlines

Q: Is it true that Mr. Kelleher, knew nothing about the airline industry, and started Southwest on a "lark" when he was in his thirties?
A: His entrepreneurial spirit led him, while he was an attorney, to develop an idea with Texas businessman Rollin King for an airline that would operate within the state of Texas. It would be more affordable than car travel, save business travelers countless hours of travel time and present a convenient option for millions who had never experienced it. Their work to establish Southwest began in 1967, but the airline would have several legal hurdles to overcome before it would take flight on June 18, 1971.

Q: Can you tell me a bit more about the story of Southwest handing out fifths of liquor to passengers?
A:Southwest's competitors continued to wage fare battles after the carrier took to the skies. All hell broke loose in February 1973 when Braniff placed a full-page ad in the Dallas newspapers announcing a three-month "Get Acquainted" sale which would fly Braniff passengers from Dallas to Houston for $13(half of Braniff's and Southwest's regular fare.) Braniff thought this latest scheme might put Southwest out of business once and for all. Then-President Lamar Muse came up with a counter strategy that became one of Southwest's most famous ads in its history. It read: Nobody's Going To Shoot Southwest Airlines Out of the Sky for a Lousy $13. It announced that Southwest would match Braniff's fare of $13 OR Southwest Customers could pay full fare ($26) and get a free bottle of premium liquor free. The promotion worked, and for those two months in 1973, Southwest became the largest distributor in Texas of Chivas, Crown Royal and Smirnoff!

Q: How did you come to be the President and COO of Southwest?
A: It certainly wasn't a career goal! I had a wonderful mentor in Herb Kelleher, and because of that, I was able to ?be there? when issues came up or when a creative solution was needed . I grew within the organization (as we encourage all our Employees to do), and I am one of many, many leaders at Southwest who have been ?home grown? to lead the airline and its 34,000+ Employees through the challenges of the next millennium. I?m honored to be in this position, but I can?t say it was part of my professional blueprint!

Q: What is the ?secret? to the success of Southwest?
A: Southwest?s business model is predicated on low costs. We have low operating costs that allow us to offer our Customers low fares. Our ?secret? is really no secret at all. We treat our Employees well, and they in turn serve the Customers well. That revenue stream makes our shareholders happy, and it?s a proven cycle of success. Our Employees share many values, and one of them is having a manic eye toward keeping our operating costs low because they know we need low costs to remain profitable and offer low fares.