PHOENIX, AZ – Southwest Airlines CEO Gary Kelly has worked for the company for nearly two decades but even he wasn’t around when the carrier began flights in Phoenix.
It was 1982. Southwest was barely a decade old, and Phoenix was the 16th city on its route map. Tempe-based America West Airlines, now US Airways, was 18 months away from starting service.
Southwest started small, with just 13 daily flights to six cities, but Southwest co-founder Herb Kelleher saw big growth potential. “We’re planning on making Phoenix a hub for our service,” he told reporters at the time.
It wasn’t an empty promise. Southwest made fast-growing Phoenix home to one of its largest operations in the country, with more than 200 daily flights at the peak. Phoenix and Las Vegas used to trade spots as Southwest’s busiest city, a spot now held by Chicago. Phoenix ranks No. 3, with more than 170 daily flights. Southwest has a maintenance facility, flight-provisioning center and a crew base here. It carries more local passengers than any other airline, including US Airways.
The rapid growth in Phoenix is in the past as Southwest focuses on new cities, most notably Atlanta, where it begins service next week. It is ramping up there following last year’s acquisition of AirTran Airways.
Kelly, who was six years out of college and working for an accounting firm in 1982, sees Phoenix as a big beneficiary of the AirTran acquisition. Non-stop flights between Phoenix and Atlanta debut on March 10. And more are likely on the way.
“You’ve got 16 more non-stop (U.S.) destinations, potentially, by the Air Tran acquisition,” he said. “That will show up up much faster on the Southwest route map as compared to where we would have been had we not acquired AirTran.
There is also the potential for international flights because AirTran serves the Caribbean and Mexico. Phoenix would also be a logical spot for planned Southwest flights to Hawaii.
“I’ve got to believe Phoenix will have some role, if not a significant role, in all of that,” he said.
Kelly was in Phoenix last week for the airline’s annual employee meetings and sat down with The Arizona Republic for an interview on everything from fees to fares.
Excerpts from the interview:
Question: What did you say to employees?
Answer: The message is really a celebration of 2011. The only disappointment in 2011 was surging fuel costs. Everything else, I tell you what, I felt like we did a wonderful job and had a wonderful year and really historic accomplishments. The new frequent-flier program launch. Introduction of three new cities’ service in two weeks’ time. Obviously, the acquisition of AirTran on May 2, followed by the historic seniority list integration (agreements) with the pilots.”
Q: What are the priorities in 2012?
A: We need to continue to drive revenues to overcome higher fuel costs and then we need to work harder on keeping the rest of our cost structure under control.
Our strategic initiatives that are already under way will require a lot of focus and execution here over the next couple of years. The top three: the AirTran integration, which will take several more years; to promote and tweak our new frequent-flier program, which is going very, very well. And the the new (Boeing 737-) 800 model is coming in the first quarter.
Q: What do the new planes bring to Southwest?
You get 38 more seats (175 in total) which is a good one-third increase in capacity and far short of a one-third increase in costs. So the economics are quite good.
That’s a big effort for us and going very well.
Q: On a recent Southwest flight, the flight attendant was positively giddy about new service to Hawaii and told passengers to look for an announcement “real soon.” Was he jumping the gun, or are you close?
A: It’s not decided. I could see us making a decision this year. I don’t see us flying to Hawaii this year. The 800s are the right equipment for it and they’re going to come equipped for Hawaii. We don’t have labor rates in several of our (union) agreements for international or Hawaii service, so that has to be done.
Q: There’s still a lot of grumbling about the dramatic changes made to your Rapid Rewards frequent-flier program a year ago, especially from travelers who are earning fewer free tickets because they mainly fly shorter routes and/or buy inexpensive tickets. Are you seeing negative impact on business?
A: There’s no overall evidence that the program is less popular, is less successful, less anything. The overall evidence is quite the contrary. We’re seeing the trips per frequent-flier member are up significantly compared to where we were.
We were honest about this in the beginning. We were not getting frequent fliers flying us long haul because you just didn’t get rewarded properly. We’re seeing people change their behavior. We’re seeing people take long-haul flights, earning awards.
Ninety percent of our customers are better off with the new program than before.
Q: How can you argue that its better for travelers who, say, fly frequently between Phoenix and Southern California or Las Vegas or Albuquerque?
A: If you bought … the absolute cheapest fare and that’s all your ever going to do in the future, no, you’re not going to be better off, just in what it takes to earn an award. On the other hand, because the (new) rewards don’t expire, because there are no blackout dates, I could argue that even for that person it’s better than it was.
Q: So no regrets?
A: Oh, no, absolutely not. The program’s working great. The one thing that I wish we didn’t have: It is more complicated than the old program, which means that customers are going to have to slow down a little bit and put a little bit of effort into understanding all of the benefits. Over time, all that will certainly happen.
Q: Southwest’s low-fare reputation has taken a bit of a beating, with complaints about your fares on your Facebook page and elsewhere. Here’s a recent comment from your Facebook page: “I am looking to book four different trips on your website. When will your prices go down. They are insanely high.” Does that distress you? Do you think it’s valid?
A: I think the issue is fuel. One thing I just reminded our people of last night: Our fuel bill is up $5 billion a year in 10 years’ time. It’s a gigantic increase in cost. The fares have had to go up, all else being equal, just to cover increase fuel costs.
Relative to the industry, we are the low-fare leader. We don’t nickel-and-dime you. We work very hard to not follow the crowd and charge things like bag fees and change fees. We’ve stayed true to our customers in that respect.
I wish fuel prices weren’t so high. I can assure you if they weren’t, fares would be a lot lower.
Q: Do you hear a lot of grumbling about Southwest’s fares?
A: I hear it more. Yes, I do hear that more.
Q: The lack of bag fees and reservation change fees is a huge point of difference for Southwest. How long can bags continue to fly free?
A: We’re committed. I don’t want to be waffling on this. We’re not going to charge bag fees, no way, or change fees. I feel like we have won more customers because we don’t charge bag fees. It helps because we are the only carrier that stands for bags fly free. That more than pays for those ancillary fees (other airlines are raking in).
Q: So it’s safe to say bags will fly free all year?
A: It’s probably safe as long as I’m CEO.
Q: When Southwest said it was going to add another row of seats to its Boeing 737-700s beginning this year as part of a major redesign of its seats, it sounded like a page out of the playbook of Allegiant Air and Spirit Airlines, a move designed mainly to boost revenue. Fair assessment?
A: That’s just not accurate. This was a part of a complete re-examination over the past six years … of what can we do to increase the customer comfort onboard our aircraft. These new seats I think are far more comfortable than our existing seats.
Q: How so?
A: The current seat is the flotation device. So it sits up a little high. It’s a little too firm. I don’t think it’s angled properly. This one sits more like a chair.
Q: Will Southwest add any new cities this year in addition to any AirTran destinations?
A: You could have some other, non-AirTran cities that could be opened up over the next couple of years. So stay tuned.