Forty years ago, when two American businessmen have thought up how to make air flights between three largest cities in the south of Texas – Dallas, Houston and San Antonio – is cheaper than similar trips by a taxi, the idea looked quite “mad”. Anyway – frankly unrealistic. However such ideas also provide revolutionary breaks in a measured current of business «by rules».
Southwest Airlines: the business plan during a business lunch
The idea of two businessmen has been excellent realized in the form of Southwest Airlines Co. – first-ever “budgetary” (low-cost) the airlines which example has appeared it is extremely infectious. Today it is the largest world air carrier if to consider on an annual volume of passenger traffic, and the sixth in the United States – on annual profit.
And all began in March, 1967. Then in one of restaurants of San Antonio have met 46-year-old New York lawyer Herbert Kelleher who has got over to Texas and its business partner, local businessman Rollin King. According to a corporate legend, during this dinner King on a napkin from under a cocktail has outlined for the first time the business plan of that was soon embodied in Southwest Airlines. Namely – has connected straight lines three mentioned cities and in the turned out triangle on points has painted, as flights between them can be compared at the price to trips by a taxi on the same distances. On a napkin all looked convincingly. In the same place, at restaurant, partners have struck on hands, and on March, 15th, 1967 on light the new regional airline – Air Southwest, after four years replaced the name on Southwest Airlines was.
Cutting up of knotsAt first the company made regular flights between the mentioned cities on three Boeing 737-200 which the fourth has soon joined. But for a short while – it have there and then sold. The matter is that in first two years of activity Southwest Airlines there was a running in of the scheme thought up by its founders and it was not necessary to think of profits. And though four boards have been still declared, only three really flied. It has demanded optimization of the schedule and economy in everything, including time of refueling and landing of passengers. So the well-known formula ten minute turn (that it is possible to translate as «ten minutes on a turn») was born. Planes Southwest Airlines really spent To those far times at landing collars-moorings ten minutes – unlike hour parking of all large airlines.
However already since 1973 by means of this and many other revolutionary novelties (about which more low) the company became profitable – and kept this status all next years, up to the present. Southwest Airlines – unique airline in the world which can brag of such enviable stability.
Today “founding fathers” can be happy – their “mad”
scheme has worked, despite amicable chorus of sceptics. (King has retired in 1995, and Kelleher has left a post of the chairman of the board in May of last year, having given way new CEO and to the president of Gary of Kelly.) though all began not so well, and problems for four decades at King with Kelleherom sufficed.
The first and struggle for the right to fly up and sit down in native Dallas began main. And there, where the company management considered it necessary.
The matter is that one of the major factors of the economy, allowing to beat competitors the prices for tickets, there was a basic choice not the main airports, and minor. All system of the American civil aircraft is constructed on a principle “spitsy ite” (hub-and-spoke) when the lion’s share of routes (”spokes”) passes through the main transport knots (hubs), forming as a result movement of general “wheel” (transport business). Each American airline (later this system was extended worldwide) has some knots through which transports passengers on all territory of the country.
This system is convenient first of all to large airlines – for passengers it means at least inevitable changes at the central airports. And also, as at once have guessed King and Kelleher, rise in price of tickets! Because “knots” loaded under an outset are long idle times of planes, long registration and landings, and in a number a case and higher aerotailors gathering. The companies solve all these problems simply – rising in the price for tickets.
Southwest Airlines from the very beginning worked under other scheme – «from point And in point B without changes», having counted on the airports of “second row” located near to big cities where both to the people it is less, and the prices for land service more low. For example, on city airport of Albany (instead of three New York “whales” – JFK, La Guardia and Newark) or the district Orandzh-Kaunti airport in suburb of Los Angeles (instead of LA International). Today under this scheme the company carries out regular flights in 64 cities in 32 states, making more than 3300 departures daily. Approximately 80 % of passengers Southwest Airlines – «local», and only 20 % – transit, making changes.
And here in “native” Dallas where the company headquarters is located, there was a discrepancy. The matter is that Southwest Airlines from the very beginning was guided by local airport Love Field, but the Federal aviation service (FAA) in 1960th years recognized the airports in Dallas and next the Fort-uorte not corresponding to a growing volume of passenger traffic and has in the form of an order charged to the staff authorities to build the new international airport serving both cities. By it also it was made a duty to limit activity of the old airports.
Similar obligations have taken up all leading airlines – but only not Southwest Airlines, based already after signing of the general agreement. It continued to follow the scheme – the rate «on small». In this case – on airport Love Field as the road from Dallas in the new airport – Dallas/Fort Worth International (DFW) – occupied much more time, and it inevitably would affect the price of tickets. For the purpose of protection of “the sovereign rights» the company has brought an action against the city authorities of Dallas, started to make to its of difficulties. Business has reached the Supreme court of the USA which in 1973 has supported Southwest Airlines, and after opening next year DWF this company remained unique (!), receiving service at the old airport.
Business – kerosene
“The hedge” model of deduction of the prices for the fuel, developed in Southwest Airlines became other essential economy.
As well as the corresponding hedges-funds which have arisen in 1990th years, Southwest Airlines also is engaged in “futurology” – studies tendencies and prospects of the market of aviation fuel and, proceeding from the received forecasts, forms the fuel policy. Namely – buys fuel only when, according to analysts of the company, the price for it minimum. Contrary to widespread error that the prices for oil «continuously grow», there were also fluctuations in the market of oil products, and rates of increase changed. On the account of these changes policy Southwest Airlines last three decades also was under construction. And in general such tactics of has justified – even such force-majeur events for fuel branch as war in Iraq and the hurricane Katrina, the Texas airline has worried with the minimum losses.
However, some analysts consider that the aggressive policy of extraction of the profit, spent by the company in the late nineties – the beginning 2000, wasn’t based on hedging of real business risks, and was reduced to simple gamble in the market of energy carriers – often without any rational bases. But even if it was gambling in a roulette all the same good luck was on party Southwest Airlines, in that critics agree even.