It is interesting to me that AMR is crowing about its reported Q2 profits of $95 million (excluding bankruptcy costs and special items).  American Airlines is #3 in revenue (behind Delta and United Airlines) presently.  Delta and United Airlines are projected to report net income in excess of $500 million.

Alaska Airlines, number 7 in revenues (and certainly in possession of a greatly inferior network and high-ish labor costs) has pulled in $105 million in net income.
US Airways, #5 in revenues, should be reporting about $250 million in net income.  Southwest Airlines, #4 in revenues, should also be reporting about $250 million in net income.  It’s notable that SWA also has exceptionally high labor costs (although it also has exceptional productivity from that same labor group).

I really wouldn’t go bragging about $95 million in what is arguably an excellent quarter for all airlines.  This is, if anything, a reminder that the costs aren’t the only thing at play here.  There remains a significant revenue problem that doesn’t really get entirely addressed in the Corners Strategy.

Futhermore, crowing about revenue performance gains isn’t entirely honest either as American Airlines already has the most room to make a difference.  AA has not brought itself to parity with the other legacy airlines on the revenue side of the equation, it simply has experienced revenue growth that all other legacy airlines have also experienced in the past financial quarter.  The real question is how would American Airlines done if it had parity with United, Delta and US airways.  Legacy network carriers who all operate with similar equipment, similar approaches and with the same hub advantages and disadvantages.

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Spirit Airlines began service at DFW about 1 year ago and really began to amp up its service at DFW just after American Airlines entered into bankruptcy.  They’ve announced the addition of 5 new cities from DFW including Baltimore and Houston in September and Oakland and Los Angeles next April.  They’ve also filed paperwork to serve Cancun from DFW.

This would bring Spirit’s service at DFW to 25 daily flights to 20 destinations in just over a year.  Not bad.

Proof that the DFW market is *not* a low fare market.  Spirit is seeing load factors close to 90%.  JetBlue and Virgin America have discovered opportunity here as well.  Delta has started flying into DFW right on top of American Airlines turf.

This isn’t just an incursion against American Airlines.  It’s an incursion on Southwest Airlines turf as well.  Both of these airlines have been fat, happy and sassy with their respective domains here in the DFW area.  Each has enjoyed a kind of monopoly on their services in and out of the DFW metroplex area.

As a resident of the area, I’m glad to see the competition and particularly glad to see Spirit’s competition.  The truth is that it is unlikely that I personally will ever fly Spirit.  I’m 6’2″ tall and a big man.  Spirit’s 29″ seat pitch isn’t exactly my idea of even a leisure flight at a low price.

I expect we will see even more competition in the area and particularly so at DFW.  DFW airport isn’t an expensive airport to fly into and with AA’s bankruptcy, I expect we’ll see some terminal consolidation over the next year freeing up more gate space for more airlines.

Competition is good.

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Southwest Airlines and Airtran mechanics have agreed upon a new deal and found a way to merge seniority satisfactorily. I wrote about this in February when Southwest mechanics derailed the last agreed upon deal.  At that time, how seniority would be handled within the airline in general as well as in Atlanta was the primary issue.

Getting a new deal agreed upon and accepted since then is fast work by all those involved.  I suspect that Southwest was able to alleviate some of the concerns involved with its moves into new aircraft and international flying.  SWA has likely been able to find a way to ensure that all parties maintain some parity in their seniority and their quality of life is preserved.

Not every deal has been made the first time around in union integration in this merger but every deal has been done fairly swiftly compared to most any other merger.

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Houston’s city council voted to approve allowing Southwest Airlines to build a small (and let’s stress the word small since it’s just 5 gates total with just 4 dedicated to SWA) international terminal at Houston Hobby airport. United’s Jeff Smisek decides to make an internal company pronouncement that they’ll be eliminating 1300 jobs in Houston and likely will not be initiating the Houston to Auckland flight with their 787 deliveries either.

This is just bad form.

United clearly has been contemplating these changes to Houston for some time. You don’t make such a decision as a result of a city council decision and off the cuff. So far, I’ve seen no public announcement from United and certainly no indication of what those 1300 jobs actually do. In other words, the elimination of 1300 jobs in the Houston area is likely another step in the consolidation of the operations of ContiUnited’s merger.

But it makes a great public soundbite for a threat, no?

Furthermore, the Houston – Auckland flight was exciting and in some respects made sense way back when it was originally announced but the landscape has changed (again) and it is entirely likely that the revenue from such a flight didn’t make sense when compared to other opportunities to deploy the 787 to when it arrives.

Let’s not forget that airlines are businesses which require careful revenue management to yield the best income and profit possible. You do not run such businesses on the basis of a temper tantrum. Smisek isn’t going to be the guy who does so. So my conclusion is that this threat isn’t a threat but simply a well timed business decision designed to smack at a city council that isn’t allowing United to be its master.

And why should it? It isn’t as if the ContiUnited merger benefited Houston. It didn’t. It was known from the start that in such a merger where the headquarters would be located in the Chicago area jobs would be lost in Houston. No Big Surprise. Why should Houston reward United for having a near monopoly on flights in and out of Houston Intercontinental Airport?

For all the talk that airlines engage in about competition being good, I’ve never seen competition that an airline wanted to see show up. In fact, the airline industry is very reactive in a negative way to competition. Airlines have gone after other airlines with a genuine vengeance and intent to kill just for an airline introducing a route on “their” turf. These are real gang fights.

Oddly enough, every time a market gets competition into airports dominated by a single airline, everyone seems to win in one way or another. Cities see increased economic impacts. Airports see new revenues. Existing airlines (smart ones anyway) tune up their schedules and services and more often than not see *better* revenue performance than they had when it was a near monopoly.

Furthermore, it isn’t as if Houston is a new city for SWA. Southwest has done one hell of a lot of business in Houston over the years and has treated the city very well over that time. Why wouldn’t you want to work with an airline that has brought good to your area?

This was a bad move on United’s part. Bad for publicity, bad for the airline making this fight about jobs and bad for the industry as a whole as it just portrays these SuperLegacy airlines as bullies to large and small governments.

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The Fort Worth Star Telegram’s Mitchell Schnurman has THIS POST on SkyTalk about companies keeping morale high to maintain profitability.  It’s timely since it coincides with my own blog post about the labor cost that American Airlines is incurring with its battle over costs with the unions.

Profitability is about quite a few things in a major company such as an airline.  It’s about keeping a strict eye on costs, certainly.  It’s also about keeping a close eye on cash flow and cash holdings.  One little storm can cost an airline tens of millions of dollars.  It’s about maintaining strong metrics in ontime departures and arrivals and it’s about being smart enough to buy a fleet to do the job you have without overextending oneself.

Some airlines have been profitable with poor labor relations.  Generally that has occurred at a “peak” in the airline industry curve and almost always when contracts are in place and not up for re-negotiation.

How an airline survives the downturn in the airline industry has a lot to do with employee morale.  Employees with a strong, loyal morale tend to fight for their company.  They realize that their jobs and their success are tied to their airline succeeding more often with more customers more of the time in those bad times.

Employee morale isn’t about high salaries.  It really isn’t.  Study after study has shown that employee morale can’t be maintained at a high level with just a high salary.

It’s about making employees a part of the business.  Giving ownership of problem solving to employees who experience the problems.  Providing a share in the profitability and providing benefits that allow them to feel secure with their families while they work.   It’s also about employees perceiving “shared pain” on the part of their management team when things are bad.  There is nothing worse than an executive earning a bonus while other employees are “sharing the pain”.

A workplace where treatment is both fair and just is also important.  Valuing the inputs of a baggage handler should be just as important as valuing the financial analyst who monitors and sets pricing.

It isn’t just about your union employees delivering great service to customers either.  It’s about being able to get agreements to cover your needs now and the future.  A company that is doing right by its employees is better able to negotiate union contracts to cover new flying, new aircraft and new partnerships.  The faster you can negotiate those contracts, the more competitive advantage an airline has.

It’s notable that Southwest and Delta airlines are working very hard with their union employees to put new contracts into place to cover opportunities for new business very quickly.  It’s also notable that airlines such as American Airlines and United Airlines aren’t doing too well with their employees and aren’t executing new strategies to compete and, most importantly, earn sustaining profits.

Employee morale isn’t the only key factor to success.  But it is one of the top 2 or 3 key factors and one that several airline CEOs seem to be ignoring more and more as time passes by.  Historically, the airlines who have done well both in regulated and deregulated environments with respect to profitability are those that had genuine leaders as CEOs.  Shareholders would be wise to pay more attention to leadership at the helm and a little less attention to quarterly profitability.

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Southwest Airlines’ Boeing 717s are going to be subleased to Delta with deliveries of about 3 per month starting in 2013.  Southwest thinks this is good for them as it gets their basic aircraft type back to one (the 737) and Delta thinks this is good as it is getting a cheap fleet type that can meet needs in the 100 seat category for longer “regional” flights.

Delta is a fan of the McDonnell Douglas aircraft and the 717 is just that.  They are typically robust, long lasting aircraft and the cost to purchase these is often so low, they make sense even when their fuel efficiency isn’t the best.

One aspect of this deal seems a bit odd.  I’m rather surprised that Southwest, Boeing and Delta didn’t work a deal to take them fully off Southwest’s books and transfer ownership either to Delta or create new leases for Delta.  Both airlines are big Boeing customers and I would think that Boeing would want to facilitate a win/win deal between the two airlines.

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Southwest Airlines wants to build a small international terminal at Houston Hobby airport and thinks that doing so will benefit Houston with more jobs, more economic impact for the city and everyone wins.  United (Continental) Airlines doesn’t want a damn thing going on at Houston Hobby and definitely does not Southwest Airlines beginning international flights from that airport.  United thinks that allowing this will reduce jobs, have a negative impact on the economy and, well, HOUSTON SHOULD JUST DO WHAT UNITED WANTS BECAUSE WHAT’S GOOD FOR UNITED IS GOOD FOR HOUSTON.

It’s like watching Southwest Airlines and American Airlines fight over Love Field airport in Dallas.

Make no mistake, this fight is over competition.   Southwest provides LCC competition on international flights from Houston to Mexico, Central America and the Caribbean and that is United Airlines’ major domain from that airport.  In fact, those United routes are a huge profit earner for the airline.  Of course United doesn’t want the competition.

Airlines, especially SuperLegacy airlines, hate competition.  And they loath competition on the very routes that earn them the most money.

Here is my take:  Southwest wants to introduce more flights to Houston Hobby.  In the process of introducing international flights there as a kind of “hub” for SWA International operations, it will almost certainly introduce more connecting flights to more SWA focus cities such as Dallas, Atlanta, Chicago, Baltimore, Los Angeles, etc.  This is a good thing.  Southwest has a great product and one that isn’t going to negatively impact Houston.

United Airlines has major investment in their fortress hub at Houston Intercontinental from commitments made by Continental Airlines pre-merger.  Houston Intercontinental is a fortress hub for them like DFW is a fortress hub for American Airlines.  Fly into IAH and you’ll be amazed at how dominated that airport is by one airline.  It is a crown jewel of hubs and the last thing United wants is an airline poaching customers from those routes.  But one reason why those routes are so profitable for United is that there is virtually no competition.

Competition is good.  Houston should allow Southwest to build its 5 gate international terminal.  It will benefit Houston and if United isn’t quite so profitable there, so what?  I don’t think there will be a massive increase in overall traffic to international destinations served by both airlines a la “Southwest Effect”.  I do think that SWA will poach quite a few customers locally and I say that what benefits the businesses and private parties of Houston is far more important than whether or not United gets to have its cake and eat it too.

The airlines are actually similar in labor costs but SWA maintains higher productivity.  It’s not as if United doesn’t have a fighting chance against SWA, it does.  For one, it has a frequent flier program that will be stronger for Houston residents most likely and it has the ability to feed as much traffic as it wants through Houston to southern international destinations.

The one party here that I do not think gets hurt with this is the city of Houston.

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There was lots of noise in the airline airwaves last week but one item that bears notice is Southwest Airlines.  The short version is that despite warnings to the contrary, they earned a profit of $98 million due to fuel hedging augmenting their income.  Excluding one time gains, the airline has an $18 million loss.  Should we be concerned?  No, we shouldn’t.  The fuel hedge gains are legitimate and an area where Southwest excels.  Furthermore, they will earn more profits as they consolidate the Airtran operations into their own.

Also notable is their decision to contract with Amadeus for international reservations with the expectation of being able to handle international reservations by 2014.  I think this is good news.   I think there are big opportunities for Southwest when it comes to international flying and especially so from the US to Canada and Mexico and it continuing the Airtran flights to the Caribbean.

But this points out the fact that, once again, a revamp of the reservations systems and, in particular, the ability to codeshare is going to be deferred again in favor of the international priority.   The truth is, this whole system should be revamped by now.  It’s shameful that it isn’t and it put a very real strategic partnership with WestJet into the toilet because of these complications.  Furthermore, Southwest doesn’t realize much gain in its relationship with Volaris as a result.

I and many others would be a lot happier to see Southwest contracting with a real reservations system to accommodate real needs across the board.  The idea that Southwest can remain “independent” in its reservations system as an airline with 702 aircraft and 97 destinations.  There is a time and a place to be independent and then there is a time to have a an infrastructure that matches your operations.  It’s notable that Southwest continues to grind on with their 40 year old Braniff system (originally named Cowboy) that they’ve “improved” over the last few decades.  It’s notable that this is a system that my own father was involved in when he was a vice president at Braniff.  My father hasn’t been with Braniff since 1981.

It’s time for Southwest to get a modern reservations system and the sooner, the better.  Make the investment now as there is one thing for sure:  Reservations systems aren’t going to get cheaper and they will get more difficult to build yourself.

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American Airlines complained recently that in 2014 28 of its prime routes in which its the dominant carrier will be subject to attack by Southwest Airlines once the Wright Amendment is lifted for domestic flights in the United States.   Those 28 non-stop routes out of DFW account for $800 million in revenue most recently.

Mostly this is about American Airlines making an over-arching argument for why it needs relief on costs.  New competition will assault them even more just as they expect to come out of bankruptcy.  Laying that foundation for the courts and labor unions should be expected.

What I wonder is why no one has taken the opportunity to point out that when American Airlines exits bankruptcy, Southwest Airlines will have the highest labor costs of the legacy airlines in the United States and, yet, American still views them as the treacherous competition.

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It’s funny, some people think Southwest showed some LUV for the Airtran 717 fleet when the merger was announced between the two companies.  In fact, Gary Kelly simply said that, at that moment, the 717 was intriguing to SWA and certainly not a harmful aircraft to Southwest’s fleet plans overall.

After the merger, Gary Kelly started talking about how they don’t fit and they don’t want them.

The 717 is a good aircraft and it would fit some of Southwest’s flying quite nicely but . . . it would complicate scheduling and I think that’s what Mr. Kelly doesn’t want.  If Southwest has a 737-700 go technical at an airport, it’s not a problem to drag another 737-500/700/800 up to the gate and hand it over to the pilots and flight crew to use for their needs.  You can’t drag a 717 up to the gate and hand it over to the same pilots.

I think the 717 is leaving and I think it will be gone in 2 to 2 1/2 years.  Holly Hegeman of Plane Business says they are going to Delta and its a done deal.  I say they’re leaving and they’ll find homes somewhere.  Boeing Capital if nowhere else.  Delta probably could and would be interested in them as they are cheap and fit a seat count that Delta had and no longer has in its mainline fleet.  (DC-9-30/40/50 aircraft are leaving the fleet)

The real shame, in my opinion, is that the 717-200 wasn’t expanded into a longer range 717-300/300ER aircraft.  I think that would have breathed real life into that airframe and I think it wouldn’t have hurt the 737 line at all.  But it became an orphan and, as such, it became unattractive to most airlines.  That said, it will remain in the world for at least another decade if not more and it’s got some highly efficient engines that justify its purchase when combined with the used market price for a 717.

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Every airline under the sun is submitting applications to the FAA to fly a route that is outside the perimeter rule for Reagan National Airport in Washington, D.C.   Virgin America wants to fly from San Francisco to DCA.  Southwest and JetBlue want to provide non-stop flights between DCA and Austin.  Southwest plans to offer follow on service from Austin to San Diego.  Alaska Airlines wants Portland, Oregon to DCA. 

Like I said, everyone wants a piece of the action.  Why?  Well, those flights outside the perimeter are typically good revenue earners because they are limited on those routes, provide direct connectivity to politicians and businessmen and provide access to an airport that is very difficult to get.

And once you have those slots, you’re often able to reuse them for something else that falls within the original constraints of the award if you want.  A toehold at DCA is very, very valuable to an airline. 

Who gets them?  I actually tip this towards the JetBlue and Southwest proposals for connectivity to Austin.  It fits within a strong need.  I think that flights to San Francisco and Portland aren’t as attractive because there is decent competition on those routes albeit via Dulles airport.   I do think that connecting state capitols and, in particular, those of politically powerful states such as Texas, will be an unofficial driver in this choice.

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Former American Airlines CEO Gerard Arpey made a comment at a Boston, Mass breakfast event recently in which he expressed that Southwest Airlines will face enormous challenges going forward and specifically from network carriers.

Frankly, I think it’s a bit early for Mr. Arpey to be opining on any airline other than American Airlines and certainly not when he left a company in bankruptcy after a long tenure.  It’s just bad form.

It also points to something that I think is constantly underestimated at Southwest Airlines.  Southwest is more than just a company focused on the next financial quarter’s results.  Its people really are its biggest asset and the esprit de corps that exists there is bigger than what the financial picture presents. 

Southwest does have higher costs in comparison to many these days.  It also continues to succeed where others don’t.  Focusing in on their costs alone is a mistake when it comes to that airline and Arpey just made the mistake.

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Southwest Airlines has now been awarded a single operating certificate for itself and the Airtran brand as of Thursday of this week.  This means that Southwest can begin truly blending the operations by turning Airtran aircraft into SWA aircraft, moving crews into Southwest operations and operating SWA or Airtran aircraft on routes as they wish.

So far, Southwest gets a good report card on its integration efforts in that it has seen most labor groups come to a quick agreement on seniority integration and it has achieved this single certificate on time.  Smooth integrations yield the results expected from a merger and this would appear to be working in Southwest’s favor.

Going forward, we’ll see a steady transition with more and more routes being served in SWA colors and more crew and staff transitioning into SWA operations.  I would expect little, if any, drama at this point and that includes the SWA mechanics who threw their small temper tantrum but who have much to lose if they hold off too long and force the seniority integration into binding arbitration.

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The core of Southwest’s reservations systems dates back to a system developed by Braniff International called “Cowboy”.  It is nearly 50 years old and Southwest bought it from Braniff in the 1980’s and just kept patching things onto it.

As a low cost strategy for an airline in the 1980s or 1990s, that made sense.  The problem is that the 1990s started more than 20 years ago. 

Southwest has been severely impacted in code share relationships as well as international flying as a result of their antiquated system.  They began investigation of a replacement system after they began to realize their inability to codeshare in a North American pact between themselves, WestJet and Volaris.  That work was put on hold coinciding with the Airtran merger announcement. 

Now, Southwest has already figured out it can use the Airtran system to facilitate international flying for the interim.  In fact, Southwest has *added* international flights to the Airtran network while removing domestic flights (to be replaced by Southwest flights) at the same time.  As an interim solution, that works.

But over the next 2 years, we’ll see Southwest evaporate Airtran domestically and that may leave a tiny international airline in place (Airtran) to help with international flying.  The problem is, they’re no closer to being able to integrate with Airtran’s reservations system than they are with any other airline.

Cobbling together systems and doing things low cost is fine and even the right thing to do in many ways today.  However, it is *not* the way to handle reservations for an airline that the 10th largest in the world (by traffic) and which has a fleet of nearly 700 aircraft and almost a 100 destinations.  It isn’t the way to handle reservations for an airline that is now consistently *missing* revenue opportunities with partner airlines such as Volaris.  In fact, Southwest was actually kind of good in pioneering codeshares with other quirky airlines and making it work.  Now, not so much.

So why is Southwest willing to invest Billions (with a “B”) on buying new aircraft from Boeing but not into a reservations system that it really needed now and which isn’t really being looked at for anytime in the near future?  

I think there are 2 main reasons.  First, the Airtran merger which is occupying a vast amount of resources and will be doing so for the next 2 years.  Southwest quite rightly recognizes that it has an exceptionally big task to complete in this area and that losing focus could cost them.  They’ll innovate as much as they can in the meantime but that job is just way bigger for way more people in the organization. 

Second, a new reservations system is scary.  Many have tried to build them, very few have ever succeeded.  Much of what exists out there today is fairly antiquated.  American Airlines has reportedly had monumental problems with the new system being designed for it by HP, for instance.   There is a reason why several airlines have migrated from half baked systems to SABRE, for instance.  Two of those have been Virgin America and jetBlue.   I suspect that Southwest looks at that landscape littered with failures and half successes and doesn’t relish the job.  I wouldn’t.

So what’s the solution?  I would try to figure out if the Airtran system could be scaled up to Southwest’s needs.   That’s the Navitaire Open Skies system that many have left.  The alternative is to bite the bullet and build an IT infrastructure around SABRE (or a similar legacy reservations system.)  The options are limited until someone builds a new, modern reservations system that works.  SABRE is one choice but other legacy systems such as Worldspan and Galileo still exist.  

My point is that no one has built a new, ground up system for airlines capable of handling all the needs of a major airline in the world in decades.  All systems are systems conceived of in the late 1960s or early 1970s which have been patched, added to and migrated over the years.   Anything remotely new is inadequate to the scope and scale that these same huge airlines operate from. 

Oddly enough, I think that Southwest would be wise to find a partner in this system.  It’s an airline that prefers it’s own ways, yes, but sharing that risk with other major airlines would be a wise move today, tomorrow and a decade from now.

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Southwest Airlines mechanics have voted against the integration agreement crafted between their union and the Teamsters who represent Airtran mechanics.  Curiously, Airtran mechanics voted overwhelmingly for the integration agreement. 

This isn’t the worst setback for Southwest but it does make one wonder what was a part of that agreement that made it so unsatisfying for the mechanics?  This isn’t an area that should feel too threatened on either side as Southwest has a culture of inclusion and has a strong need for mechanics to service its aircraft.  I do not see how anyone could have perceived that their jobs or salaries were threatened.

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Southwest is doing something interesting with Airtran.  They are not only absorbing the airline, they’re using it as a proxy for getting heavily involved with international flying to the markets that should be very interesting to Southwest in the first place. 

The latest announcements are for routes to Cancun from Denver and Austin on Airtran equipment.  The knowledge base is there for flights to Mexico and the Caribbean from Airtran staff and Southwest has the strong bases in cities that Airtran has hardly flown to.  This is a powerful combination and it should work very, very well for Southwest.

It does bring to my mind a few questions.  Does this mean Southwest will adopt Airtrans’ reservations system?  Or does it mean that it is finally working hard to build its infrastracture for a newer, better reservations system?  Southwest needs this more than it needs an early delivery of the 737MAX.

I also wonder if Southwest won’t begin entering into Canada in the next two years.  There are a lot of very expensive routes to Canadian cities that could be very ripe for Southwest to enter into.   Chicago to Toronto comes to mind as just one excellent route (Currently, the best prices are WestJet codeshares on American Eagle and that tells the whole story right there.)

So far, I like how Southwest is using their acquisition for international travel and it may well end up being one of the truly great benefits to come from the merger.

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Given all the airlines who have flights to Hawaii, a huge leisure destination, is Hawaii the right choice for an airline such as Southwest Airlines?

I think it is.  Make no mistake, the market that Southwest would enter into after such a decision is the incredibly competitive West Coast to Hawaii market but I think Southwest could offer something that even the experienced airlines can’t. 

Exceptional service and better than average comfort in economy class.  Let’s leave out the idea of flying there in Business Class on your airline points.  It’s irrelevant to earning revenue.  Instead, let’s consider the economy class service of airlines serving Hawaii.  The cheap seats that people *buy* to go on a vacation.

You can bet that Southwest can offer a better than average experience to Hawaii and I think they can do it profitably with the 737-800 and very profitably with 737-MAX8 aircraft. 

Will we see it this year? No.  In fact, I would argue that it’s unlikely we’ll see it in 2013 but I do think we’ll see it in 2014 and I think that, like most SWA efforts on new routes, it will be done in a way that will be both highly efficient and highly rewarding to a customer. 

Consider that a flight from LAX to Honolulu isn’t any farther than some of Southwest’s trans-continental flights today and that their choice of aircraft can and will permit them to offer no bag charges for the first 2 bags.  Their seating is more generous than average and their flight crews are generally happy to see you and serve you.  Better yet, SWA frequent flier members can use their points for a *value* oriented flight to Hawaii that based on points values probably will seem frugal compared to many airlines.

That’s a powerful recipe for success.

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Quite a few cities are getting surprised by who is going to retain Southwest Airlines service and who isn’t.  The analysis by most is that it’s all about whether or not the city is big enough to retain service by Southwest’s standards and while that’s true on the surface, there is more to the story.

It’s about who’s running the airport and who is running the city.  If the city has an airport board and director who knows how to make a business case to an airine, Southwest will listen.  If those people know how to supply valid data to Southwest, the airline will listen.

It’s also about what city is willing to partner up with Southwest and even encourage local business to use Southwest for mainline service. 

But even then, Southwest is smart enough to look at what it can change in the existing airline model for a city.  A great example is Wichita, KS.  Southwest knows that it can provide service to other Southwest cities that make far more sense for travelers from Wichita than the current Airtran service from Wichita to Atlanta. 

Yes, it’s about the money but it is also about who wants to get or keep Southwest service and make the business case.  A good airport board and airport business director can make all the difference.

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Southwest Airlines has decided to change its seating on its Boeing aircraft to a thinner, lighter seat that permits an additional 6 seats on its airplanes.  Now, instead of 137 seats on its 737-700, they will have 143 seats.  I’m sure the “upgrade” will occur on its soon to arrive 737-800 aircraft as well. 

It’s a reasonable move on the part of SWA.  First, most trips on SWA are less than 2 hours in length which means even a slightly less comfortable seat is OK and probably doesn’t impact the customer much at all.  And we don’t know that the seats are less comfortable.  The truth is, the modern seating being offered for airliners looks uncomfortable but usually ends up retaining the same comfort levels.  This new seat doesn’t require SWA to reduce its seat pitch and that’s a good thing from my perspective.

The additional 6 seats potentially offer more profit for Southwest and it could use more profit.  While they continue to be the most consistently profitable airline, their costs are now in line with legacy airlines (mostly) and adding more profit to each full flight helps offset those costs.  Based on my own flights with Southwest, those 6 extra seats will contribute heavily to their bottom line as it has become rare for me to see a flight less than completely full.  In addition, Southwest’s load factors have soared over the past few years when they have traditionally been substantially less than legacy airlines.  Again, more seats helps here.

Southwest is also making its moves to integrate the Airtran system into the SWA system.  We’re now seeing Southwest announcing flights into Airtran cities on routes that are either the same or nearly the same as what Airtran had.  There are no surprises so far and I do think that Southwest is moving methodically along in its plans now that it has seniority agreements in place for both pilots and flight attendants from Airtran.  Southwest says it will take several years to integrate.  I think that Southwest will build steam quickly and end up integrating the substantial bulk of the two airlines faster than expected.  All indications point to Southwest growing quickly comfortable with the Airtran system and as they do grow more comfortable, decision making will happen more rapidly.

I also notice that Southwest is already getting aggressive on flying to Mexico using Airtan.  They’ve applied to serve new routes from several cities in the US and its notable that these routes do not seem to link up with Volaris routes in Mexico so far.  In other words, it appears that Southwest is keeping Volaris on board with existing services but exploring direct travel into Mexico via Airtran.  This isn’t out of character for Southwest, they like to experiment when opportunities arise to do so with little risk.

I do think that Southwest needs to decide how it wants to do foreign travel.  Will it be with partners or will it do it on itself?  Now that it has the international expertise of Airtran in its back pocket, I think they may be more interested in doing this themselves.  It is notable to me that despite the “codeshare” its doing with Volaris, Southwest hasn’t really worked too hard to expand it or promote it on a national basis.  That makes me wonder if both parties are less than satisfied with the relationship so far.

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Southwest Airlines has managed to earn better than expected profits in the quarterly earnings announcement but that comes primarily from fuel hedging contracts.  Profits from actual airline revenues are a bit down from last year and this is largely due to rising fuel costs from increased oil prices.

That said, last year was Southwest’s 39th consecutive profitable year and that, my friends, is really unheard of in the airline industry.

Southwest is going to push hard to manage their capacity and remain rational players in the marketplace with respect to their competitors.  By manage capacity, I mean that they’ll hold it steady for this year and probably next year with some growth, perhaps, in 2014.  Obviously that plan will change if demand significantly changes. 

There are a few things that Southwest will be doing to remain competitive against other major US airlines.  First, they’ll work hard to remain the most productive work force in the business.  Given that their workforce takes pride in this, that really shouldn’t be tough for them to maintain.  Second, they’ll work on taking advantage of fuel economy both in their flight planning as well as by buying more new aircraft.  I suspect that Southwest will not hold on to aircraft quite so long as they have in the past but, rather, cycle newer aircraft with upgrade engines and performance packages into their fleet. 

Finally, I look for SWA to start looking for some low hanging fruit on revenues out there.  I believe that they will be looking at opportunities in smaller communities and I believe they’ll take a long, hard look at operating a single fleet type aircraft to service what I like to call 3rd tier cities and towns.  These are the Wichitas, Lubbocks and Knoxville’s of the country.  Whether its done with smaller jets a la Embraers or Bombardiers or with turboprops such as the Q400 or ATR, I do believe they’ll do a trade study to determine if they can be players on that level with the same great Southwest service and reliability.

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