It has been a rough few years for the airline industry. Ongoing terrorism fears after Sept. 11, a weak economy, a war with Iraq, and some poor decisions in the executive ranks of several companies have led to bankruptcies and near-bankruptcies for some of the country's biggest commercial airlines.
But one airline continues to fly high. Southwest Airlines
TMF: Jim, you just announced earnings at Southwest. Give us the highlight and the lowlight of the quarter.
Parker: The highlight is that we made a profit in what might have been the worst quarter in the history of the airline industry. The disappointing part, of course, is that like all airlines we are seeing a lot of pressure on the revenue side of our business so the profit was not as large as we would like. We are hoping that at some point we will see some improvement in the revenue picture and in the economy for our business and our industry.
TMF: Let's talk about the airline industry. Why is it so hard to make money in this industry?
Parker: Since 9/11, basically there are fewer people flying and those who are flying are paying less for it. Even at Southwest, where we have a very strong business model and have continued to make a profit since 9/11, our unit revenues have been down around 15% from pre-9/11 levels. There aren't many businesses in America I think that could withstand a 15% reduction in their unit revenues and continue to be profitable. So, we are happy that we have been able to do that.
But at the same time we realize that we have essentially a new baseline in terms of customer demand from which we will have to build, and we are confident that we will over a period of time. But I think it will just take a little while for the airline economy to improve.
TMF: Given the current market conditions, Jim, do you prefer Wild Turkey today or Pepto Bismol?
Parker: (Laughing) Wild Turkey, by all means.
TMF: Now, you know Wall Street's analysts come out after a quarterly report and give their opinion, and we see Credit Suisse First Boston
Parker: Oh, I hear about them but you can't be guided in your business decisions by that kind of thing. We have tried to run our business for 32 years in a way that makes sense and really keep our eye on the long-term financial strength and stability of our company. We have been profitable for 30 consecutive years.
Money magazine last year actually did a study showing that over the 30-year period that they have been in existence and the 30 years that we have been in existence, the No. 1 best investment of any publicly traded company in America would have been Southwest Airlines. I think the markets appreciate what we do here at Southwest, and over a period of time we think that our investors will definitely be well rewarded.
TMF: The upgrades, the downgrades, they come and go.
Parker: (Laughing) They come and go.
TMF: Let's talk a little bit about American Airlines
Parker: I can't spend a lot of time trying to speculate on what happens at other airlines. We've got our hands full here at Southwest. We pay our people well, but we don't try to have the highest pay in the industry. We ask our employees to do what our executives do, which is to take part of their pay through performance in the company both in terms of stock options and by buying stock through the profit-sharing plan or through employee ownership plans. Our employees are really the largest, as a group, shareholder of Southwest Airlines, owning about 9% of our company just through the profit-sharing plan.
So, I think that kind of shared vision on the part of our employees and the executives is really an important part of our formula for success. Our employees know that our executives are taking the same kind of share in the future in our company that they are.
Tomorrow: Is Southwest at a competitive disadvantage to bankrupt competitors?