But now, Business Week reports that Southwest is changing its low-cost strategy by slowing expansion and by trying to wring more revenue out of its business travelers by using what it calls "ancillary services," like priority boarding and in-flight "extras."
Two factors are driving the radical changes: tougher competition and higher oil prices. Many of Southwest's competitors have gone through bankruptcy, allowing them to cut labor costs and shed unprofitable gate and plane leases. The result is that the airline's cost advantage over rivals has shrunk, and its pilots and flight attendants are now the highest paid in the industry. At the same time, the price of oil is nearing $100 a barrel (BusinessWeek, 11/7/07), driving up Southwest's costs.
The outlook this year isn't pretty. Southwest's earnings are expected to decline about 15% in 2007, to $510 million, on sales of $9 billion, even as many of its rivals are reporting profit gains. "Their business model is ten years out of date," says aviation industry consultant Michael Boyd.