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High on Southwest
Cheap Charlie · February 19, 2001

Earnings season has just finished on Wall Street. And the airlines got hammered. Again. Everyone except Southwest.

Funny how that happens. The big airlines that claim the need for higher and higher fares, combined with more and more restrictions are losing money or facing declining revenues at an alarming rate year after year, while Southwest quietly continues it record of twenty-something years of profits. (By the way, it is now the most valuable airline in the country based on market capitalization.)

You have to ask yourself, "why"? Why can an airline that doesn't splash gaudy ads across magazine pages and in newspapers for the next level of business travel and first class consistently make money?

Why can Southwest make money with only one class of service, tourist class, when the other airlines spend their time soaking the business class and first class traveler for higher and higher fares unimaginable to the hoi polloi?

Even with a series of fare increases over the past year far in excess of inflation, the major airlines are still hurting. According to the Wall Street Journal, United posted a net loss of $71 million, US Airways has already racked up some of its biggest losses, Delta net income plunged 95 percent and Northwest was also awash in red ink.

At Southwest, also according to the Wall Street Journal, net income rose 65 percent and revenues shot up 22 percent. This from an airline that held the line on fare increases to 5 percent to 6 percent.

Go figure.

It seems that every other airline in the world is screaming that they need increased fares. They moan about increased jet fuel costs. They complain that tourist class doesn't provide any profits. They fight over passengers who fork over megabucks to fly in business class and first class seats. And they lose money with regularity.

Some day they may get it. But I don't know when.

When Southwest moved into the Northeast section of the U.S., I remember pilots of other airlines telling me about the "reality of weather and costs" that Southwest would soon face. These pilots of competitors all felt that Southwest was going to face a big comeuppance. But though the on-time record has suffered a bit, the bottom line has remained strong. Southwest is eating their lunch.

For investors, the news from Southwest is continued good times. They have a stock that keeps climbing and climbing. The news from the other airlines is depressing. Take a look at the valuations going back about five years.

I'm cheering for Southwest and their continued expansion into new markets. With our government in disarray on the airline front and unions in control of the major airlines, Southwest is the main influence in keeping airfares reasonable. I sure hope they keep making millions.

Good for them. Good for us.

Charlie Leocha is the Boston-based author of Travel Rights: Know the Rules of the Road and the Air Before You Go. Cheap Charlie appears every Monday on this site. E-mail him at leocha@aol.com or access his Web site.