By Scott Miller and
Ashley Fletcher Frampton
Published March 14, 2011

As a teenager in Texas, Gary Kelly doubted the company he’d come to lead decades later — one now expected to provide a major jolt to the S.C. economy.

Kelly’s first flight was on a Southwest Airlines jet in 1972, the year after the low-cost carrier made its first commercial flight. He was one of three paying customers.

“I remember there were three flight attendants on board too, and they were wearing hot pants,” Kelly said during a recent appearance in Greenville. “I didn’t think even as a high-schooler that Southwest would make it.”

In 1986, Kelly went to work for Southwest. He became CEO in 2004 and added the title of chairman in 2008.

Southwest, which was incorporated in 1968, got its start serving Dallas, San Antonio and Houston within the Lone Star state.

Angela Sweeney waves as the first Southwest Airlines jet arrives at Charleston International Airport from Dallas on Saturday. (Photos/Leslie Burden)

Capt. Joe Long welcomes bleary passengers in Charleston to Southwest Airlines on Sunday morning.

Terry Williamson of Charleston reads on one of the early flights of Southwest Airlines from Charleston to Chicago.

Erin Davis of Geneva, Ill., gets a surprise birthday present of a package of peanuts on the Southwest flight from Charleston to Chicago.

Throughout its early days, Southwest faced several legal challenges to its attempts to launch and later expand service. The company didn’t report its first year-end profit until 1973, and it didn’t expand beyond the Texas border until 1979.

By the end of 2010, Southwest was offering service in 69 cities. Also in 2010, the company marked its 38th consecutive year of profitability.

This year, Southwest is adding three new markets to its tally: On March 13, it started service to the Palmetto State through Charleston International Airport and Greenville-Spartanburg International Airport. Also this month, on March 27, Southwest begins service to Newark, N.J.

Business and community leaders across South Carolina have said they expect the arrival of Southwest to push down fares, curb the leakage of S.C. travelers to nearby airports and attract more business and tourism to the state.

Low-cost strategies

Southwest’s earnings record is a rarity in the industry and one that it has managed even while it provides for free certain services that cost extra elsewhere, such as checked bags and rescheduled flights.

The airline’s original operating model was built upon offering no-frills service and low-cost fares to Texas travelers. Southwest has retained those core values, said Bob Montgomery, vice president of properties.

Over the years, some of its original practices have shifted and evolved; others have not.

Montgomery said Southwest has long had an open seating policy, rather than assigning seats. The practice saved the company money in the days when technology that handled seat assignments was complicated.

Nowadays, some cell phones have more advanced technology than an airline needs to assign seats, Montgomery said. But Southwest has kept the policy because it found that passengers prefer to choose where they sit.

Open seating also plays into a separate money-saving strategy: It helps passengers flow onto the aircraft faster, which reduces Southwest’s turn time — how long it takes an aircraft to unload, refill and get back in the air.

Years ago, Southwest invented the “10-minute” turn to keep its planes in the air, Montgomery said.

“They’re making money when they’re in the air,” he said. “They’re spending money when they’re on the ground.”

Southwest flies larger aircraft today, and its typical turn times are now 25 minutes. But Montgomery said the turn time remains fast and helps keep fares low.

Another way the company keeps costs in check is by flying one type of aircraft. Montgomery said the airline currently flies three models of the Boeing 737, and in doing so, it creates efficiencies in training and maintenance.

The airline once was known for its no-frills food policy, which meant no in-flight meals. But now that many carriers have cut out complimentary meals to save money, Southwest is no longer distinguished in that category.

Hedging on fuel purchases is another cost-saving strategy for Southwest. Montgomery described the airline’s practice of buying fuel in advance as an insurance policy against rising prices.

“We had a very aggressive fuel hedging program, particularly in the late ’90s and the turn of the century, when we really saw fuel run up,” he said. “That saved us hundreds of millions of dollars a year.”

When prices go in the other direction, the hedging program can cost the airline, he said. But Southwest still maintains a relatively aggressive hedging policy.

Not too seriously

Montgomery said hedging on fuel prices is an example of the philosophy of “(taking) business seriously but not ourselves.”

Southwest bills itself as a company with a fun-loving culture, infusing its business, whether advertisements or management attitude, with humor and creativity.

One week years ago, Kelly said Southwest gave passengers a free fifth of Wild Turkey bourbon as they boarded flights.

“For one week, we were the biggest liquor distributor in the state of Texas,” Kelly said.

Company officials, as well as outside observers, say the approach makes a difference in operations. Montgomery said Southwest’s employees have fun on the job. He counts that among the reasons for the airline’s financial success.

“Because of our great people and the culture that we have here, they just simply work harder and more effectively,” he said. “It’s impossible to put a number on the benefit that that gives us.”

Johan Prins, a Charleston-based consultant who previously worked as an executive with KLM Royal Dutch Airlines, also cited Southwest’s workplace culture as an operational advantage.

Years ago, Prins said, Southwest’s founding CEO would frequently reward groups of employees with bonus checks for outstanding work. The practice kept employees “swimming in the same direction.”

Prins said Southwest’s point-to-point model is another reason for its success. The airline primarily takes passengers from one city to another without an in-between stop. By contrast, the hub-and-spoke model that many of Southwest’s competitors use requires coordination of incoming flights from many directions. And it leaves room for lost luggage.

“That is a far more complicated operation,” Prins said.

Montgomery had a different view.

“I would represent to you that the hub-and-spoke system is a more economical model,” he said. “It gives you more itineraries off of one point. Our choice of point-to-point is a little more expensive. The reason we do that is because our passengers want to fly from point.”

Prins described Southwest as a company that has always kept things simple, to its benefit. It was among the first airlines to market directly to consumers rather than through travel agents, for example, he said.

“I would say that there are hardly any negative remarks to be made about Southwest,” he said.

Looking ahead

In Charleston, Southwest will operate three daily flights to Baltimore/Washington, two to Chicago and one each to Houston and Nashville, Tenn.

In Greenville-Spartanburg, Southwest will operate two daily flights to Baltimore/Washington, two to Chicago Midway, and one each to Orlando, Fla., Houston and Nashville.

Kelly called that a “modest number.”

Growth is a goal for the company at all the markets it serves, he said. The airline typically monitors traffic and market demand for a year before expanding.

“I can’t promise you that we’ll be adding any flights soon (in South Carolina), but I can tell you that we want to,” he said, mentioning that Las Vegas is one the airline’s most popular destinations.

Kelly said early bookings at both S.C. airports have been strong. He questioned whether the airports would have the vendors and parking capacity to handle all of Southwest’s customers.

“That’s the challenge we see around the country,” he said. “You’re going to have a lot of customers at your airport.”

Charleston travelers have been eager for a new lost-cost carrier since AirTran Airways ended local service in December 2009. That airline, which was acquired by Southwest last year, said it did not have enough business travelers locally to be profitable.

Business travelers often pay higher fares than leisure travelers, who can book early for the best rates.

Prins said that he expects Southwest to sell better with business travelers in Charleston, in part because of its stronger and more aggressive marketing.

Montgomery said he could not speak to the reasons that AirTran left Charleston, but he said that Southwest has a track record of sticking with markets.

“It’s not in our DNA to close cities,” he said. “We have a brand that we’re trying to establish. We’re trying to become the hometown carrier, and you don’t do that by coming in and then closing markets.

“Charleston is not an experiment for us.”

Reach Ashley Fletcher Frampton at 843-849-3129 and Scott Miller at 864-235-5677, ext. 29.