Southwest CEO: Opportunities ahead
Southwest Airlines CEO Gary Kelly looked ahead to this year and beyond in a 45-minute interview covering flights, fares, fees and more. Other highlights:
Question: In an interview in Phoenix two years ago, you said bags would probably fly free on Southwest as long as you were CEO. Will you make the same statement today?
Answer: No, because I don’t know. That’s just so speculative. The problem I have with that is that you just can’t make these predictions in the future that far about what makes sense for our customers, our shareholders. But we have no plans to charge bag fees.
Q: You were comfortable saying it two years ago. So what’s changed?
A: I don’t want to charge for bags because I like where we are. And I would hope that we don’t charge for them. But if that’s what customers prefer, if there’s the appearance in the marketplace with other competitors that we’re higher fare because of the way that they do their fees, well, that would be a challenge for us. So far, that’s simply hand-wringing. That hasn’t materialized. Our brand rankings are very strong and in large part because we don’t charge bag fees (or) change fees.
Q:
On your recent earnings conference call you said fare increases at Southwest have been “very modest, very infrequent and very judicious.’’ Statistics show, though, that Southwest fares are up significantly in several major markets, including Phoenix, with average fares up nearly 30 percent over the past five years. How do you reconcile that with the fact that you keep saying you are the low-fare leader, and why have your fares jumped so much?
A: That question was in response to 2013. I would agree, if you go back to 2010 (fares have increased). We’ve seen a 35 percent increase in fuel cost. That’s what’s really put the pressure to increase the fares. If you look at our average fares compared to our competitors’ in a variety of ways you’ll find that we’re still the low-fare leader in the United States. ... You’ll generally find that Southwest at any given point in time has the low fare roughly 40 to 50 percent of the time and that hasn’t changed much historically.
Q: The lack of bag fees and change fees aside, has longtime maverick Southwest become just another major airline?
A: Well, no. I think we continue to be remarkably different. ... We still don’t nickel and dime people to death, that hasn’t changed. If anything we’ve doubled down on that. And now you’ve live TV for free onboard the airplane. So that’s an upgraded service at no charge to our customers. And, of course, we still offer and are proud of our open seating. (Southwest doesn’t assign seats. Passengers board based on the time they check in for their flight and have their pick of open seats on the plane.)
Q: You mentioned seating. Are you still studying assigned seating or is it off the table?
A: I wouldn’t say it’s more or less likely than charging for bags. But it’s just one of those things right now where we’re very happy with our product. Our customers love us. ... After we have a new reservations system (in 2017 or 2018) it’s probably time to revisit that question. But you shouldn’t foreshadow a decision at all. I’m just saying you’ll have the ability to tactically consider it. And whether we do it or don’t do that I think remains to be seen. But that’s years away.
Q: What would the argument for assigned seating be?
A: If we can prove to ourselves that it’s more cost effective and if we can prove to ourselves that it will drive more revenue because customers prefer it, I think it’s a no-brainer. That was the litmus test last time (nearly10 years ago) and it failed on both counts. It was two-to-one.
Q: Are Southwest flights to Hawaii still under consideration? In early 2012, you said you hoped to make a decision on Hawaii that year.
A: Fast-forward to 2014. The fact of the matter is we have a whole host of expansion opportunities today that did not exist in 2012. We’ve got LaGuardia (in New York). We’ve got Reagan (in Washington, D.C.). We’ve got the Wright Amendment. We’ve got Hawaii. We’ve got Alaska and Canada, too. The point is it’s just different today and it’s just different in a really good way.
To me this is like 1971 Southwest Airlines all over again. We’ve got the whole state of Texas (for expansion when the airline started) in 1971 to think about and now we’ve got the whole of North America. So Hawaii will simply have to either go to the front of the line or wait its turn for us to evaluate what the next best expansion opportunity is.