Southwest Airlines (NYSE:LUV) exemplifies its ticker -- LUV -- through its great customer service, friendly employees, and low fares. And in the process, they've defied gravity, remaining largely profitable in an industry that has seen many competitors' earnings come in for a hard landing.
Southwest has done a great job of maximizing its strength as a low-cost provider, by primarily servicing secondary airports, making point to point flights (nearly 80% of customers fly non-stop), and only using one type of aircraft, Boeing's (NYSE:BA) 737. And in doing so it remains on course to have its 37th consecutive profitable year, while sustaining a corporate culture that is the envy of the industry.
The past year has hit the airline industry hard. Specifically for Southwest, where 2008 fuel costs made up 35% of the operating expenses while relying on folks to hand over their hard earned cash for discretionary travel, severe jet fuel price fluctuations on top of a recession haven't combined for a smooth business environment. Sure, Southwest has been affected negatively by a dip in revenue. However, at the start of the crisis, Southwest took the time to look at its core strength and what really makes it special. So with the confidence that only an industry leading balance sheet and liquidity position bring, management sacrificed short-term profits to further grow brand loyalty.
Focusing on the customer experience and leveraging the strength of a great corporate culture, they launched initiatives that are sure to maintain their 18-year streak of No. 1 cumulative Customer Service satisfaction ratings, beating out United (NASDAQ:UAUA), Delta (NYSE:DAL), and JetBlue (NASDAQ:JBLU) just to name a few.
Unlike their competitors, Southwest refused to charge hidden fees for baggage. They launched a new boarding system to make passengers happier. They also started paying more attention to their emerging business traveler segment with Business Select, a service that produced $75 million in incremental 2008 revenue. With new features like "Fly By" priority access security lanes and a better airport terminal experience that includes padded seats and more power outlets, more business travelers view Southwest as a legitimate option. And as a low-cost carrier, Southwest stands to benefit from shrinking corporate travel budgets creating a potential win-win situation for both the airline and its corporate clientele.
As Chairman and CEO Gary Kelly put it in the 2008 Annual Report "Our objectives remain: enhancing the overall Customer Experience; appealing to more business travelers; and generating more revenue per flight." In my opinion, the investment Southwest has made toward these objectives will more than pay off once the economy makes a comeback.
