- Jul 7, 2004
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http://www.kansascity.com/mld/kansascity/b...ss/13296592.htm
Southwest’s days as an industry upstart may be drawing to a close.
But hard times are driving big changes in the industry. With other airlines slashing costs inside and outside of bankruptcy court, Southwest is losing its industry lock on low fares.
Moving into Denver is one of the bigger risks the airline is taking as it tries to grow before other airlines catch up.
One of Southwest’s main cost advantages over other airlines is likely to melt away over the next few years. When oil prices were low, Southwest shrewdly executed extensive fuel hedges to lock in low prices. For the past 18 months, the benefits have been huge, but they will shrink steadily over the next five years. If oil prices remain high, Southwest won’t be able to negotiate new hedges at attractive prices, bringing its fuel costs more in line with other airlines.
Frontier and United already have matched the low fares Southwest announced for its flights between Denver and Phoenix, Las Vegas and Chicago, which are scheduled to begin Jan. 3. With comparable fares, passengers will be choosing between no-frills Southwest and two airlines that, unlike Southwest, offer assigned seating and premium features such as first-class sections, more legroom and in-flight entertainment.
For some Denver travelers, that is reason enough to stick with the airlines they have grown used to flying.
Southwest’s operating cost, as measured by each seat flown one mile, is a low 7.85 cents. That compares with 8.68 cents for Frontier and 10.43 cents for United in the most recent quarter. But if fuel prices come down, that advantage could shrink. Excluding fuel, Southwest’s cost is 6.31 cents per seat mile, compared with Frontier’s 5.86 cents and United’s 7.11 cents.
In an interview, Potter argued that fliers would prefer Frontier’s extras, such as more legroom in its seats and personal television screens that offer programs and onboard movies for a fee. He maintained that fliers are turned off by Southwest’s first-come, first-served seating, which sometimes resulted in long lines of passengers waiting to board.
Frontier immediately matched Southwest’s introductory Denver fares, and Potter maintains the airline can make money at the lower prices.
“I’m not trying to be arrogant here in saying Southwest is not a fierce competitor, because they are,†said Donohue. “But things are changing. And things are changing pretty significantly.â€
Southwest’s days as an industry upstart may be drawing to a close.
But hard times are driving big changes in the industry. With other airlines slashing costs inside and outside of bankruptcy court, Southwest is losing its industry lock on low fares.
Moving into Denver is one of the bigger risks the airline is taking as it tries to grow before other airlines catch up.
One of Southwest’s main cost advantages over other airlines is likely to melt away over the next few years. When oil prices were low, Southwest shrewdly executed extensive fuel hedges to lock in low prices. For the past 18 months, the benefits have been huge, but they will shrink steadily over the next five years. If oil prices remain high, Southwest won’t be able to negotiate new hedges at attractive prices, bringing its fuel costs more in line with other airlines.
Frontier and United already have matched the low fares Southwest announced for its flights between Denver and Phoenix, Las Vegas and Chicago, which are scheduled to begin Jan. 3. With comparable fares, passengers will be choosing between no-frills Southwest and two airlines that, unlike Southwest, offer assigned seating and premium features such as first-class sections, more legroom and in-flight entertainment.
For some Denver travelers, that is reason enough to stick with the airlines they have grown used to flying.
Southwest’s operating cost, as measured by each seat flown one mile, is a low 7.85 cents. That compares with 8.68 cents for Frontier and 10.43 cents for United in the most recent quarter. But if fuel prices come down, that advantage could shrink. Excluding fuel, Southwest’s cost is 6.31 cents per seat mile, compared with Frontier’s 5.86 cents and United’s 7.11 cents.
In an interview, Potter argued that fliers would prefer Frontier’s extras, such as more legroom in its seats and personal television screens that offer programs and onboard movies for a fee. He maintained that fliers are turned off by Southwest’s first-come, first-served seating, which sometimes resulted in long lines of passengers waiting to board.
Frontier immediately matched Southwest’s introductory Denver fares, and Potter maintains the airline can make money at the lower prices.
“I’m not trying to be arrogant here in saying Southwest is not a fierce competitor, because they are,†said Donohue. “But things are changing. And things are changing pretty significantly.â€
