Southwest Airlines Flying High With Innovations
Southwest Airlines (NYSE: LUV) is one of the top 20 Innovators in The Innovation Index. Southwest Airlines (Southwest) revenues have soared in the last three years from $5.9 billion in 2003, to $7.6 billion in 2005, with expected revenue of about $9 billion in 2006. Southwest stock is down 3% for this year as reported in our weekly Innovation Index report. However, the stock moved up 2% last week, and is bound to move higher before the New Year rolls in because of falling oil prices, increased holiday travel, share repurchase program, and new business growth driven by innovations. Barron’s and Fortune also rated LUV a buy last week, and expect solid performance from Southwest for 2007.
"We are very excited about our near-term growth opportunities and pleased with our earnings momentum. Our year-to-date earnings are up 77.9 percent. Therefore, assuming continuance of the current healthy revenue environment, we expect to easily exceed our 15 percent 2006 annual earnings growth goal," said Gary C. Kelly, CEO of Southwest in the earnings press release in July, 2006. Kelly affirmed that: "Our People are the reason Business Week named Southwest one of the World's Most Innovative Companies and why I am confident we will overcome tomorrow's cost challenges and make our airline even stronger than it is today."
Southwest provides the best overall value in low cost airline travel. Southwest may not offer all the frills, but does offer clean all leather seats with reasonable leg room, along with basic compliments including pillows, blankets, snacks, juice, soda, and water on all flights. The best available feature is no charge for changes on full-fare reservations. Southwest serves 63 cities in 32 states, operates more than 3,150 flights a day and has more than 32,000 employees system wide. It boasts the highest number of passengers enplaned domestically, and has the lowest customer complaints of any domestic airlines.
What are the top ten key innovations that make Southwest Airlines soar higher, drive new growth, and perform better than the competition? Here is my list of the top ten innovations at Southwest:
1. New destinations
In 2006, Southwest began offering direct services from Denver and Washington Dulles airports.
Southwest began serving Denver in January 2006, and currently offers more than 32 daily nonstop departures to nine cities, with direct and connecting service to an additional 44 cities. The addition of Denver service has been a huge hit for Southwest travelers, and in the coming years is poised to become a top ten major airport for Southwest business.
Southwest recently began serving Washington Dulles International Airport in October of this year. Previously, Southwest only served Baltimore airport. The addition of a low cost service out of the nation's capital will add topline revenue in 2007 and beyond. The travelers are expected to buy out all the travel Southwest has to offer out of Dulles for the foreseeable future.
2. Low fare sales
Southwest leads all airlines in the most low air fare sales offered throughout the year, but especially around holiday and peak travel seasons. Whereas most airlines look at peak travel seasons to maximize profits, Southwest leads by offering low fares to lure customers into flying frequently.
The following are just a few examples of the low air fares that Southwest offered during this peak holiday season:
$49 one-way fares between Baltimore/Washington and Cleveland; between Reno/Tahoe and San Jose; and between Philadelphia and Raleigh Durham.
$99 one-way fares between Birmingham and St. Louis; between Nashville and Detroit; and between Boise and Las Vegas.
$109 one-way fares on Tuesdays and Wednesdays for travel between Columbus and Phoenix; between Kansas City and Sacramento; and between Los Angeles and San Antonio.
3. New nonstop services
Southwest recently announced the addition of 33 new nonstop flights in 26 city-pairs across the nation, including brand new nonstop service between Baltimore/Washington and Pittsburgh, between Cleveland and Orlando, between Dallas Love Field and Birmingham, and between Reno/Lake Tahoe and San Diego. Southwest Airlines earlier also launched new nonstop service between Detroit Metro and Orlando and an additional nonstop between Denver and Orlando. Air travelers want to fly nonstop between the cities of their choice, and Southwest provides them the freedom to travel nonstop at economical prices.
"Southwest Airlines is an efficiency machine -- we strive to make the most effective use of our resources," said Gary Kelly in a press release for new nonstop service. "Through optimization, innovation, and efficiency, we are adding these new flights, which reaffirm our commitment to our Customers to grow our service."
4. New vacation packages
Southwest Airlines Vacations recently added Hawaii vacations to the family of 43 U.S. package destination hot spots. Southwest does not have planes flying to Hawaii. However, when Southwest realized that many of their vacation travelers chose Hawaii as a top destination, Southwest created this partnership and codeshare service with ATA Airlines. This relationship allows Southwest Airlines Vacations to offer air-inclusive vacation packages to the Hawaiian Islands of Oahu (via Honolulu) and Maui. In addition, Southwest Airlines Vacations also offers a land-only package to Kauai and an air-inclusive vacation packages to Hawaii's Big Island (via Hilo).
"We are excited to expand our product offering and offer travelers Hawaii vacation options," said Rich Basen, Vice President and General Manager of Southwest Airlines Vacations. "Prior to adding Hawaii to our vacation destinations, 22 percent of our Customers told us that their next vacation would be to a destination that we did not serve at that time. Travel packages to Hawaii were on the top of their lists. This opportunity allows us to combine Southwest Airlines' famous low fares and Customer Service with the well-known hotel, transportation, and attraction discounts offered with our vacation packages. We believe our Customers and travel agents will be very pleased."
5. Cultural Leadership
Southwest recently launched the Washington Dulles International Airport service with Station Leader Brian Fairbanks and Marketing Manager Craig Keish leading the charge. Besides providing the work history of both Fairbanks and Keish in the press release, Southwest brought out the people facing side of leadership that they bring to the table. Fairbanks has been with Southwest since 1990. In the press release, Southwest talked about the ten things their customers should know about Fairbanks and Keish:
Brian Fairbanks:
1. Enjoys SCUBA diving.
2. Has 38 cousins.
3. Is 25 percent Chippewa Native American.
4. Lived in Germany for two years while in the U.S. Army.
5. Has had perfect attendance for 15 years of work.
6. LUVs to play softball.
7. Has lived in nine states.
8. Plays the guitar.
9. Originally went to school to be a history teacher.
10. Is a self-proclaimed computer geek.
Craig Keish:
1. Was a Southwest intern for three years in Albuquerque.
2. Has lived in seven different states because his father was in the military.
3. Loves the Ohio State Buckeyes because his family is originally from Ohio.
4. Went to college at the University of New Mexico and threw javelin on the track team.
5. Attended New Mexico State for his first year of college and played football for the Aggies.
6. LUVs green chili and puts it on everything from pizza to hamburgers.
7. Was the "I" in DING at the first Philadelphia parade.
8. LUVs football, college football in particular.
9. Works with his fiance's mom.
10. LUVs to vacation in Maui.
It is this type of sharing of cultural values and leadership that makes Southwest a favorite among travelers.
6. DING!
Southwest leads all airlines with an innovative service named DING! introduced in February, 2005. DING! is a messaging cum communication service that brings fare specials directly to the customer's computer desktop; only DING! customers can benefit from these great fares. Southwest is the first airline to innovate customer relationship and communication, and creating”direct link” to customers’ computer desktops. Southwest upgraded the DING! service in 2006 that now allows subscribers to receive spectacular fare specials from up to ten of their favorite airports.
"DING! updates are a big hit with airfare bargain hunters and Southwest's loyal Customers alike," said Anne Murray, Southwest Airlines Senior Director of Online Marketing. "DING's! new flight specific offers create even lower fares, giving Customers the independence to take an unplanned getaway."
"The popularity of DING! is evident," Murray said. "More than $130 million in DING! fares have been booked since its introduction in February 2005."
7. Excellent Quality of Service
Southwest leads all airlines with the lowest complaint rate, and the "warm, friendly, and often funny" quality of service. Recently, the airlines Cargo business received the 12th straight Quest for Quality Award by Logistics Management magazine by placing first in On time Performance, Value, Customer Service, and Equipment and Operations. Southwest's overall score ranked first among all of the Air Carrier award winners. When a traveler flies Southwest, their service is always consistent.
8. Fuel Price Hedging
Southwest had the foresight that fuel prices were going to go higher, and hence began hedging against the rise of prices so that the effective price of fuel remains lower than the current street price. In second quarter 2006, although jet fuel costs per gallon increased 39.2 percent to $1.42 per gallon at Southwest, it was still lower than the industry average of over $1.65 per gallon. Further, Southwest is 73 percent hedged for the remainder of 2006 at approximately $36 per barrel, which is 50% less than the average street price; 65 percent in 2007 at $41 per barrel; 38 percent in 2008 at $40 per barrel; 34 percent in 2009 at $44 per barrel; and 12 percent hedged in 2010 at $61 per barrel. Southwest has effectively hedged and insured their business with years of price protection on fuel thereby maintaining profitability and sound financial health -- most airlines suffered when the fuel prices went up, and some even sought bankruptcy. Southwest is not resting on fuel hedging along; it is planning to install Aviation Partners Boeing Blended Winglets on up to 90 Boeing 737-300 aircraft with 59 firm orders and 31 options beginning in 2007. This will further conserve the fuel costs.
9. Boarding Process re-engineering
The innovative efficiency of Southwest's boarding process is key to Southwest's successful business model over the last 30 plus years; whereas initially, many airline competitors thought the Southwest way of boarding as boarding cattle and quite rudimentary, and ridiculed the whole process, Southwest has proved that by limiting aircraft time on the ground, it has been able to maintain an enviable ontime record at a significant cost advantage over its competitors. And travelers are happy with the process since it saves them time as well. Southwest is not resting on their laurels though. This year, Southwest conducted a limited test of several boarding methods to see how much time is required to "turn" the aircraft if Customers are holding an assigned seat for 200 separate departures at San Diego airport. Southwest ultimately wants to measure the combined success of assigned seating, customer satisfaction, ontime performance and efficiency on its business model.
"We want to make sure that we have studied all the possibilities and aspects of assigned seating before we make any change to what has been a very successful formula for the past 35 years," said Gary Kelly, Southwest's CEO. "This evaluation is an important step to determine the feasibility of assigned seating, but this is only a test."
10. Aircraft savings
Southwest is looking at new ways to save costs as it acquires new aircrafts for newer destinations and services. Southwest has been actively exploring the used aircraft market for additional 2006 aircraft and acquired one 737-700 during the third quarter, its initial foray into saving costs yet providing great safety. Southwest also signed an agreement to acquire another previously owned 737-700 aircraft. Cost savings resulting from buying used aircrafts has an impact on the earnings growths, and would definitely help Southwest meet their 15% earnings growth target for the year.
Bottomline
Southwest Airlines is one of the top 18 innovators in The Innovation Index. Whereas most airlines are struggling to stay afloat, much less become profitable, Southwest is soaring high by consistently showing profits, creating double-digit earnings growth and producing new innovations over the last several years. It is technology innovations such as DING! that bring Southwest that much closer to its customers who leverage the communication and messaging service to buy more tickets. Southwest.com is quite possibly the easiest to use airlines reservation service in the market. Expect Southwest to continue its run of innovations and strong growth in 2007 and beyond.
Download Apple's Innovation Strategy and Learn how Steve Jobs made Apple the #1 Innovative company in the world.
Download Now
Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world
References:
Southwest.com Press Releases
Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world
"We are very excited about our near-term growth opportunities and pleased with our earnings momentum. Our year-to-date earnings are up 77.9 percent. Therefore, assuming continuance of the current healthy revenue environment, we expect to easily exceed our 15 percent 2006 annual earnings growth goal," said Gary C. Kelly, CEO of Southwest in the earnings press release in July, 2006. Kelly affirmed that: "Our People are the reason Business Week named Southwest one of the World's Most Innovative Companies and why I am confident we will overcome tomorrow's cost challenges and make our airline even stronger than it is today."
Southwest provides the best overall value in low cost airline travel. Southwest may not offer all the frills, but does offer clean all leather seats with reasonable leg room, along with basic compliments including pillows, blankets, snacks, juice, soda, and water on all flights. The best available feature is no charge for changes on full-fare reservations. Southwest serves 63 cities in 32 states, operates more than 3,150 flights a day and has more than 32,000 employees system wide. It boasts the highest number of passengers enplaned domestically, and has the lowest customer complaints of any domestic airlines.
What are the top ten key innovations that make Southwest Airlines soar higher, drive new growth, and perform better than the competition? Here is my list of the top ten innovations at Southwest:
1. New destinations
In 2006, Southwest began offering direct services from Denver and Washington Dulles airports.
Southwest began serving Denver in January 2006, and currently offers more than 32 daily nonstop departures to nine cities, with direct and connecting service to an additional 44 cities. The addition of Denver service has been a huge hit for Southwest travelers, and in the coming years is poised to become a top ten major airport for Southwest business.
Southwest recently began serving Washington Dulles International Airport in October of this year. Previously, Southwest only served Baltimore airport. The addition of a low cost service out of the nation's capital will add topline revenue in 2007 and beyond. The travelers are expected to buy out all the travel Southwest has to offer out of Dulles for the foreseeable future.
2. Low fare sales
Southwest leads all airlines in the most low air fare sales offered throughout the year, but especially around holiday and peak travel seasons. Whereas most airlines look at peak travel seasons to maximize profits, Southwest leads by offering low fares to lure customers into flying frequently.
The following are just a few examples of the low air fares that Southwest offered during this peak holiday season:
$49 one-way fares between Baltimore/Washington and Cleveland; between Reno/Tahoe and San Jose; and between Philadelphia and Raleigh Durham.
$99 one-way fares between Birmingham and St. Louis; between Nashville and Detroit; and between Boise and Las Vegas.
$109 one-way fares on Tuesdays and Wednesdays for travel between Columbus and Phoenix; between Kansas City and Sacramento; and between Los Angeles and San Antonio.
3. New nonstop services
Southwest recently announced the addition of 33 new nonstop flights in 26 city-pairs across the nation, including brand new nonstop service between Baltimore/Washington and Pittsburgh, between Cleveland and Orlando, between Dallas Love Field and Birmingham, and between Reno/Lake Tahoe and San Diego. Southwest Airlines earlier also launched new nonstop service between Detroit Metro and Orlando and an additional nonstop between Denver and Orlando. Air travelers want to fly nonstop between the cities of their choice, and Southwest provides them the freedom to travel nonstop at economical prices.
"Southwest Airlines is an efficiency machine -- we strive to make the most effective use of our resources," said Gary Kelly in a press release for new nonstop service. "Through optimization, innovation, and efficiency, we are adding these new flights, which reaffirm our commitment to our Customers to grow our service."
4. New vacation packages
Southwest Airlines Vacations recently added Hawaii vacations to the family of 43 U.S. package destination hot spots. Southwest does not have planes flying to Hawaii. However, when Southwest realized that many of their vacation travelers chose Hawaii as a top destination, Southwest created this partnership and codeshare service with ATA Airlines. This relationship allows Southwest Airlines Vacations to offer air-inclusive vacation packages to the Hawaiian Islands of Oahu (via Honolulu) and Maui. In addition, Southwest Airlines Vacations also offers a land-only package to Kauai and an air-inclusive vacation packages to Hawaii's Big Island (via Hilo).
"We are excited to expand our product offering and offer travelers Hawaii vacation options," said Rich Basen, Vice President and General Manager of Southwest Airlines Vacations. "Prior to adding Hawaii to our vacation destinations, 22 percent of our Customers told us that their next vacation would be to a destination that we did not serve at that time. Travel packages to Hawaii were on the top of their lists. This opportunity allows us to combine Southwest Airlines' famous low fares and Customer Service with the well-known hotel, transportation, and attraction discounts offered with our vacation packages. We believe our Customers and travel agents will be very pleased."
5. Cultural Leadership
Southwest recently launched the Washington Dulles International Airport service with Station Leader Brian Fairbanks and Marketing Manager Craig Keish leading the charge. Besides providing the work history of both Fairbanks and Keish in the press release, Southwest brought out the people facing side of leadership that they bring to the table. Fairbanks has been with Southwest since 1990. In the press release, Southwest talked about the ten things their customers should know about Fairbanks and Keish:
Brian Fairbanks:
1. Enjoys SCUBA diving.
2. Has 38 cousins.
3. Is 25 percent Chippewa Native American.
4. Lived in Germany for two years while in the U.S. Army.
5. Has had perfect attendance for 15 years of work.
6. LUVs to play softball.
7. Has lived in nine states.
8. Plays the guitar.
9. Originally went to school to be a history teacher.
10. Is a self-proclaimed computer geek.
Craig Keish:
1. Was a Southwest intern for three years in Albuquerque.
2. Has lived in seven different states because his father was in the military.
3. Loves the Ohio State Buckeyes because his family is originally from Ohio.
4. Went to college at the University of New Mexico and threw javelin on the track team.
5. Attended New Mexico State for his first year of college and played football for the Aggies.
6. LUVs green chili and puts it on everything from pizza to hamburgers.
7. Was the "I" in DING at the first Philadelphia parade.
8. LUVs football, college football in particular.
9. Works with his fiance's mom.
10. LUVs to vacation in Maui.
It is this type of sharing of cultural values and leadership that makes Southwest a favorite among travelers.
6. DING!
Southwest leads all airlines with an innovative service named DING! introduced in February, 2005. DING! is a messaging cum communication service that brings fare specials directly to the customer's computer desktop; only DING! customers can benefit from these great fares. Southwest is the first airline to innovate customer relationship and communication, and creating”direct link” to customers’ computer desktops. Southwest upgraded the DING! service in 2006 that now allows subscribers to receive spectacular fare specials from up to ten of their favorite airports.
"DING! updates are a big hit with airfare bargain hunters and Southwest's loyal Customers alike," said Anne Murray, Southwest Airlines Senior Director of Online Marketing. "DING's! new flight specific offers create even lower fares, giving Customers the independence to take an unplanned getaway."
"The popularity of DING! is evident," Murray said. "More than $130 million in DING! fares have been booked since its introduction in February 2005."
7. Excellent Quality of Service
Southwest leads all airlines with the lowest complaint rate, and the "warm, friendly, and often funny" quality of service. Recently, the airlines Cargo business received the 12th straight Quest for Quality Award by Logistics Management magazine by placing first in On time Performance, Value, Customer Service, and Equipment and Operations. Southwest's overall score ranked first among all of the Air Carrier award winners. When a traveler flies Southwest, their service is always consistent.
8. Fuel Price Hedging
Southwest had the foresight that fuel prices were going to go higher, and hence began hedging against the rise of prices so that the effective price of fuel remains lower than the current street price. In second quarter 2006, although jet fuel costs per gallon increased 39.2 percent to $1.42 per gallon at Southwest, it was still lower than the industry average of over $1.65 per gallon. Further, Southwest is 73 percent hedged for the remainder of 2006 at approximately $36 per barrel, which is 50% less than the average street price; 65 percent in 2007 at $41 per barrel; 38 percent in 2008 at $40 per barrel; 34 percent in 2009 at $44 per barrel; and 12 percent hedged in 2010 at $61 per barrel. Southwest has effectively hedged and insured their business with years of price protection on fuel thereby maintaining profitability and sound financial health -- most airlines suffered when the fuel prices went up, and some even sought bankruptcy. Southwest is not resting on fuel hedging along; it is planning to install Aviation Partners Boeing Blended Winglets on up to 90 Boeing 737-300 aircraft with 59 firm orders and 31 options beginning in 2007. This will further conserve the fuel costs.
9. Boarding Process re-engineering
The innovative efficiency of Southwest's boarding process is key to Southwest's successful business model over the last 30 plus years; whereas initially, many airline competitors thought the Southwest way of boarding as boarding cattle and quite rudimentary, and ridiculed the whole process, Southwest has proved that by limiting aircraft time on the ground, it has been able to maintain an enviable ontime record at a significant cost advantage over its competitors. And travelers are happy with the process since it saves them time as well. Southwest is not resting on their laurels though. This year, Southwest conducted a limited test of several boarding methods to see how much time is required to "turn" the aircraft if Customers are holding an assigned seat for 200 separate departures at San Diego airport. Southwest ultimately wants to measure the combined success of assigned seating, customer satisfaction, ontime performance and efficiency on its business model.
"We want to make sure that we have studied all the possibilities and aspects of assigned seating before we make any change to what has been a very successful formula for the past 35 years," said Gary Kelly, Southwest's CEO. "This evaluation is an important step to determine the feasibility of assigned seating, but this is only a test."
10. Aircraft savings
Southwest is looking at new ways to save costs as it acquires new aircrafts for newer destinations and services. Southwest has been actively exploring the used aircraft market for additional 2006 aircraft and acquired one 737-700 during the third quarter, its initial foray into saving costs yet providing great safety. Southwest also signed an agreement to acquire another previously owned 737-700 aircraft. Cost savings resulting from buying used aircrafts has an impact on the earnings growths, and would definitely help Southwest meet their 15% earnings growth target for the year.
Bottomline
Southwest Airlines is one of the top 18 innovators in The Innovation Index. Whereas most airlines are struggling to stay afloat, much less become profitable, Southwest is soaring high by consistently showing profits, creating double-digit earnings growth and producing new innovations over the last several years. It is technology innovations such as DING! that bring Southwest that much closer to its customers who leverage the communication and messaging service to buy more tickets. Southwest.com is quite possibly the easiest to use airlines reservation service in the market. Expect Southwest to continue its run of innovations and strong growth in 2007 and beyond.
Download Apple's Innovation Strategy and Learn how Steve Jobs made Apple the #1 Innovative company in the world.
Download Now
Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world
References:
Southwest.com Press Releases
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