"BWI shares in success of Southwest"

Tuesday, August 19, 2003

As Southwest Airlines soars, it lifts up BWI
Volume: Both entities have profited from a decade of association. 
By Paul Adams
The Baltimore (MD) Sun


With the airline industry mired in recession, Maryland aviation officials
flew to Dallas Love Field on Valentine's Day 1993 with the hope of
persuading the nation's only profitable airline to bring its trademark low
fares to Baltimore-Washington International Airport.

They ended up hitching their sleepy backwater airport to a rising aviation
star, and the result has been a seismic shift in East Coast travel patterns
that has transformed BWI into one of the fastest-growing travel hubs in the
nation.

Next month, Dallas-based Southwest Airlines will celebrate its 10th
anniversary at BWI, having gone from eight flights per day from the airport
in 1993 to 156 flights per day now - the fastest growth spurt in the
airline's 32-year history.

The carrier is credited with reversing a three-year decline in passenger
numbers at BWI that began in the early 1990s, when USAir, formerly the
airport's largest carrier, began slashing flights as part of a systemwide
reorganization.

Since then, BWI's annual passenger volume has climbed from 8.8 million to a
peak of nearly 20.4 million in 2001, an increase of 130 percent, with
Southwest controlling about 45 percent of the market.

"It is, I think, one of the more remarkable and colorful success stories in
Maryland aviation history and, maybe, Maryland transportation history," said
O. James Lighthizer, who was state transportation secretary at the time.

Airline analysts say that's no exaggeration. Despite the worst industry
recession in aviation history, BWI has an enviable debt rating, largely on
the strength of Southwest's balance sheet. It has gone from being the least
active of the three Washington-area airports to the busiest in terms of
commercial passengers. And fares to several key East Coast markets have
declined by more than 60 percent, helping to draw passengers from as far
away as Philadelphia and Richmond, Va.

"They [Southwest] have changed [BWI] entirely," said Darryl Jenkins,
director of Georgetown University's Aviation Institute. "They turned it from
a dog with fleas into a major growth market."

Southwest officials say their biggest days at BWI are still ahead. Maryland
is building the airline a $219 million terminal that will give it 26 gates
and the capacity to add five more. When the new terminal opens in spring
2005, BWI will almost certainly be Southwest's busiest travel hub, handling
in excess of 200 flights per day. Currently, BWI is No. 3 behind Las Vegas
and Phoenix.

"When the new terminal project is complete, we think the state of Maryland
will have the premier airport facility on the Eastern Seaboard from a
quality and convenience standpoint," said Ron Ricks, Southwest's vice
president of government affairs.

The terminal will have 300 feet of curb space out front, providing added
area for dropping off passengers. Inside, moving sidewalks will whisk
passengers toward their gates, which will be surrounded by retail stores and
restaurants. There will be 14 passenger security checkpoints, up from the 12
that Southwest currently shares with other airlines. Complaints about long
lines at security checkpoints have been a sore spot since the Sept. 11,
2001, terrorist attacks.

The additional flights will mean hundreds more aviation jobs in the
Baltimore market, where industry employment has suffered in the past two
years as a result of severe cutbacks by US Airways, which emerged from
bankruptcy March 31 as a much smaller airline.

"We're going to almost double in size here in the next two years," said
Becky Rossis-Barnes, Southwest's inflight base manager at BWI.

Southwest employs 2,435 people in Maryland, including 953 flight attendants
and 624 pilots. Altogether, those Maryland workers made $124 million in
salaries and benefits in 2002.

Rossis-Barnes, a Baltimore native who joined Southwest as a customer service
agent nine years ago, said there will be close to 1,800 flight attendants
based at BWI after the new terminal opens.

Unusually fast growth 

Veteran Southwest employees say they have never seen a flight base grow so
quickly. When assistant chief pilot Michael A. Navarro transferred to BWI in
1998, there were about 300 Southwest pilots based in Baltimore. That number
has doubled in five years, and it will double again in the next five, he
said.

"In the five years I've been here, we've seen the employee parking lot move
three or four times," he said. "We keep getting pushed farther and farther
away [because of space]."

Southwest is buying more full-size jets this year than all of its
competitors combined; it has firm orders and options to take delivery of 413
Boeing 737s between now and 2012. At that pace, the airline will double the
size of its fleet in less than a decade, with some of those planes headed
for Baltimore.

"If we take delivery of all those aircraft ... I would hazard a guess that
it would make us the largest passenger carrier in the world," Ricks said. In
its 32-year history, Southwest has never failed to take delivery of a plane,
he noted.

With $2.2 billion in cash reserves, the carrier's financial stability has
given BWI a level of security that it lacked when US Airways was its
dominant airline. That Arlington, Va.-based carrier, which accounted for 58
percent of the aircraft departures at BWI in 1992, dismantled its Baltimore
hub after the Sept. 11 attacks and now has a minimal presence at the
airport.

"I think the entrance of Southwest assured BWI's viability as a commercial
airport," said Nick Schaus, a former deputy director at BWI and one of two
state aviation officials who traveled to Dallas on Valentine's Day 1993.
"With all of the recent industry turmoil ... were it not for Southwest, the
local population would be driving a lot farther down the road [to Washington
or Philadelphia] for its travel needs."

Invitation for talks 

Southwest considered both Washington and Philadelphia for its East Coast
launching pad before settling on BWI. Schaus remembers that the decision
came unexpectedly after the airport had been courting the low-fare airline
for nearly five years.

It started with an invitation to the airline's Dallas headquarters for what
was expected to be an informal discussion. Schaus and marketing chief Jay
Hierholzer arrived on Feb. 14, 1993, just in time to see a crowd of costumed
Southwest employees holding signs and serenading company Chief Executive
Herb Kelleher with the Carpenters' love song, "Close to You."

Kelleher, well-known as a corporate prankster with a penchant for Wild
Turkey whiskey and cigarettes, stepped off an elevator in the main lobby and
immediately joined the chorus of singers, giving Schaus and Hierholzer an
up-close look at the zany corporate culture that has inspired cult-like
loyalty among Southwest employees.

As the day wore on, Hierholzer sensed a change in tone among the casually
dressed Southwest executives who assembled in the airline's conference room.

"Suddenly, we realized we were getting the kinds of questions that you get
from a carrier that not only wants to come to BWI, but is thinking of a huge
presence," he said.

The East Coast travel market began to change months before Southwest made
its first flights from BWI to Chicago and Cleveland. In an apparent effort
to challenge the low-fare airline, Continental Airlines slashed its walk-up
fares from BWI to Chicago and Cleveland by 83 percent. In August, USAir,
which later changed its name to US Airways, announced it would match
Southwest's fares, setting off a three-way price war.

"The real irony of the whole thing is that US Airways, which was the
dominant carrier [at BWI], was the highest-cost carrier in the industry, and
Southwest, which was the newcomer, had the lowest costs, so the result was
inevitable," said Phil Roberts, vice president and managing partner for
Unisys R2A, an airline consulting firm.

By Sept. 15, 1993, Southwest's BWI launch date, it had sold 89,000 advance
tickets - a record for the airline. With competitors slashing fares to keep
up, people flocked to BWI, boosting passenger totals by 34 percent in 1994,
Southwest's first full year of operation. It has been setting records in
every year since, with the exception of 2002, when terrorism fears and a
nationwide recession resulted in a 6.6 percent decline in passengers among
all BWI airlines.

The recent decline in nationwide travel forced Southwest to put some of its
growth plans on hold, but the carrier still managed to post net income of
$241 million last year. That Southwest has continued to prosper while other
major airlines are battling to stay out of bankruptcy court is a testimony
to its unique corporate culture and laser-like focus on keeping costs low,
analysts say.

The airline has stubbornly stuck to its policy of flying only one type of
airplane, allowing it to keep crew training costs at a minimum and cutting
down on maintenance costs. It avoids large, congested airports and doesn't
operate expensive hubs, allowing it to avoid flight delays and keep airport
costs down.

Once a Southwest plane hits the ground, flight attendants and pilots work
together to clean the plane and get it ready for the next flight, saving
time and money. In most cases, the plane can be loaded and ready to take off
again within 20 minutes.

Signs of strain 

Southwest has historically kept labor costs low by negotiating flexible work
rules with its unions and compensating employees with stock. Employees have
rewarded the company with loyalty, but strains are beginning to show just as
the airline is beginning to face challenges from such upstart copycats as
JetBlue and AirTran Airways - two low-cost carriers that have been posting
profits and growing steadily.

The loudest complaints have come from Southwest flight attendants, who are
seeking a new contract that will include higher pay and more favorable
hours. Many say they are burned out after years of being pushed to increase
productivity. The union has held rallies in Baltimore and other cities that
Southwest serves in an effort to call attention to their cause.

"Our employees can only give so much," said Thom McDaniel, president of
Transport Workers Union Local 556, which represents Southwest flight
attendants.

The pay concerns have grown since the terrorist attacks, which sent the
value of Southwest's shares lower as investors dumped airline stocks.
Despite the sell-off, the combined value of Southwest's outstanding shares
is more than that of all of its competitors combined. But employees are
still feeling the loss in their profit-sharing plans.

Industry experts say Southwest's labor troubles reflect the normal growing
pains of a maturing airline.

"Now that they've become so successful and so dominant, they will have a new
set of problems that they didn't have before," Jenkins said.

But analysts don't see those issues hurting the airline's growth
opportunities at BWI in the near term.

"Whatever the saturation point is, it's a long way off," said Ray Neidl, an
airline analyst with Blaylock & Partners.


 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/dc/dcboard.php

*****************************************