Southwest AirlinesJustin Sullivan
KARL MOORE - This is Karl Moore of the Desautels Faculty of Management at McGill University, Talking Management for the Globe & Mail. Today, I'm delighted to speak to Jim Parker who's the former CEO of Southwest Airlines out of the Dallas area.
Good afternoon Jim.
JIM PARKER - Hi Karl, it's a pleasure to be with you.
KM - Nice to have you here in Montreal. The airline industry - it seems like the best way to make money in the airline industry is selling them something.
JP - Like starting with your airline, probably.
KM - Well, exactly - selling your airline. Why is the airline industry so attractive to so many people?
JP - There's something about it. I don't know if it's the kerosene fumes or what it is. It seems to have an attraction for people and it always has. Going back to the days of Eddie Rickenbacker or going back to the Wright brothers.
KM - But how do you make money because very few airlines appear to make money? I remember one time, four of the top seven traditional legacy carriers were in or coming out of bankruptcy - not that long ago. How do you make money in the airline industry?
JP - Well, basically, it's a very difficult industry to make money in and, as you probably know, the airline industry has lost more money than it's made since the Wright brothers' first flight. It's a very competitive industry so, I think, the key really is to find something that you can do better than anybody else does and I think, at Southwest, we did that. We focused on being primarily, initially, a short haul airline although it's grown, of course, into being medium haul and some long haul - primarily point-to-point operating a single aircraft type, focusing on the domestic United States. Since Southwest made its first profit in 1973, it's been profitable every year since which, as you know, is an unprecedented feat in the airline industry.
KM - Do you have any hope that the legacy carriers will make money consistently like Southwest is or is their model simply broken?
JP - Well, I think there's a prospect for some of the legacy carriers to make a profit - not necessarily every year. The hub and spoke carriers, in fairness, do some things that we didn't do at Southwest with their hub and spoke model. It gives them the ability to serve smaller communities with smaller aircraft types and so forth. But, there are a lot of inherent inefficiencies in that which means that their basic business model is going to be more cyclical, whereas, at Southwest, our company was built to be consistently profitable and we used to say that we managed our company in good times in such a way that we could still make money in bad times and it worked out. Even after the cataclysmic events of 9/11, in fact, Southwest remained profitable very quarter and every year after that.
KM - You've had a lot of Southwest clones around the world. Are there some that have got it better than others?
JP - Absolutely. That used to be the most common mantra that you would hear on Wall Street - people who wanted to start an airline would be the next Southwest Airlines. Except it always, "We're going to be the next Southwest Airlines with improvements." It might be, "We're going to do it with assigned seats or first class service," or "We're going to be like Southwest, except be a hub and spoke carrier," or "We're going to operate multiple aircraft types." So, they all had multiple improvements, none of which ever worked out.
I think, probably, in my opinion, the most successful emulation of Southwest Airlines, in the world, has been done here in Canada by WestJet. Even though it doesn't necessarily look a lot like Southwest, in some respects, with the assigned seats and the television screens and so forth, really, the fundamental business values, I think, are an emulation of Southwest Airlines.
KM - When you look at Southwest, you have a great model that works well; when people have tinkered with it, it's failed. Isn't there a need that the strategy has got to change? Do you see a time when the model is going to be broken and you have to move on to something else?
JP - I think, if you have a successful business model, I think it evolves rather than changes. At Southwest, we've gone through a number of evolutions. We introduced several new models of the 737 aircraft, for example. With technology, of course, your business model has to migrate. Southwest was the first ticketless carrier among major airlines in the United States. We introduced a website through which we sold our seats directly to customers, for example. So, the business model constantly has to evolve. You can reach a point where you might be a buggy whip manufacturer and you have to totally change your business but, at least in the airline business, I don't think we're near that point.
KM - This has been Karl Moore of the Desautels Faculty of Management at McGill University, Talking Management for the Globe & Mail.