Southwest Airlines (NYSE: LUV) has been in existence for 40 years and has been profitable for the last 38 -- what's not to like? The trend continues through the first quarter of this year as it is the only major U.S. airline reporting a profit.
The airline is a "no frills" airline, or in industry terms: a low-cost carrier. Southwest finds success by maintaining a business model that goes beyond providing savings for its customers; it fosters and maintains a relationship with the hope that exemplary customer service yields increased loyalty and increased profits.
Treat me right
Southwest has a reputation: It treats its customers right. Looking at Southwest's "bags fly free" initiative with its "no change fees" policy really puts the company's customer orientation into perspective. If a Fool wanted to change her flight and check two bags on Southwest, guess how much it would cost? Given what I just mentioned, the answer probably seems obvious: $0. In stark contrast, it would cost $210 in addition to the base ticket price to get the same with United Continental (NYSE: UAL), American (NYSE: AMR), or Delta (NYSE: DAL). I know which course sounds more appealing to me.
However, Southwest's culture of customer service and appreciation goes beyond just keeping costs low. The company has gone as far to hold planes in special situations and even answers tweets about which side of the plane to sit on for the best view. Its management clearly understands the value that these kinds of practices create. On Southwest's most recent earnings call, CEO Gary Kelly said as much: "We are continuing to win customers, we are continuing to take share and I attribute that to low fares, our no hidden fees and of course, great customer service."
Diamond in the rough
Southwest's success is great news for any company, but it is exceptional news for a company in the airline industry. It is a complicated business (metal tubes hurtling through the air at 35,000 feet with people inside), and Southwest does it well. Recently, they've been doing it alone. Here is a grim look at the first-quarter results for the other major airlines.
|
Company |
Q1 2011 Net Income (in millions) |
Q1 2011 Earnings Per Share |
Q1 2010 Net Income (in millions) |
Q1 2010 Earnings Per Share |
|---|---|---|---|---|
|
Southwest |
$5 |
$0.01 |
$11 |
$0.01 |
|
Delta |
($318) |
($0.38) |
($256) |
($0.31) |
|
United/Continental |
($213) |
($0.65) |
($82) |
($0.49) |
|
American Airlines |
($436) |
($1.31) |
($505) |
($1.52) |
Source: Company releases.
Southwest's net income is down from this time last year, but that includes around $9 million in costs related to the upcoming AirTran Airlines (NYSE: AAI) acquisition and $10 million in additional costs for fuel hedging. All told, Southwest's first quarter revenue rose 18%.
Stay strong
The important thing to watch at Southwest is its ability to stick to its business model, so it doesn't end up like the other airlines you see above. Fuel prices are volatile -- currently soaring -- and Southwest recently followed industry suit and increased certain fares by $10 in an effort to offset losses from increased fuel costs. If Southwest can avoid abandoning its no-fee policies and stay true to its customer service roots, customers will remain loyal, especially in light of the fact that in addition to raising fares, many other airlines are adding fees right and left.
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