Southwest Airlines and Free Markets

(Garry Wilmore)

(Garry Wilmore)

I recently returned from Colorado for a week of skiing and enjoying the beautiful mountains. It is amazing to witness God’s beautiful creation!

Flying on Southwest Airlines both ways, I was struck by the airline’s efficiency. Southwest truly has made a reputation for itself in every measure of company success.

Originally founded to service three major Texas cities, Southwest is now the largest domestic carrier of scheduled passengers.

Besides being one of the most-admired companies, Southwest has also consistently turned a profit, in sharp contrast to other airlines’ bankruptcy proceedings.

Southwest is known by customers for low fares, high on-time ratings, and no checked bag fees.

Southwest Airlines’ success illustrates the benefits of a free-market system with corporate competition. In 1979, the other airlines attempted to corral Southwest by restricting flights through the Wright Amendment. Restricting competition cost travelers and Dallas residents hundreds of millions of dollars.

However, Southwest still prevailed. When the full restrictions expire in October 2014, Southwest will have even more freedom to excel. The competition in the airline industry forces airlines to adopt new business strategies in order to continually attract customers, and Southwest has dominated in that area.

From Frances Frei and Anne Morriss at CNN Money,

“If Southwest tried to be great at everything, if it tried to be the low-price airline with a tricked-out, high-touch cabin experience that flew anywhere in the world multiple times a day, the model wouldn’t work. The company would end up losing money while being mediocre at everything, which describes the trajectory of most of the major airlines.”

Joe Brancatelli, on WIRED, reports on Southwest’s secrets for success. Using one type of airplane (the Boeing 737 series) for all flights allows Southwest to reduce training and inventory expenses. In addition, Southwest’s satisfied employees have never had a strike. Brancatelli elaborates on Southwest’s treatment of workers,

“Southwest staffers are generally the highest paid in the industry. But since Southwest has about 30 percent fewer employees per aircraft than its network competitors, it has the lowest non-fuel C.A.S.M. (cost per available seat mile) of any of the major carriers.”

CEO Gary Kelly recognizes the importance of letting employees shine. Unnecessary rules and regulations stifle personalities, and he encourages all employees to have a “sense of humor” as they go about their daily duties.

Kelly also understands the value of a free market, letting airlines compete to adapt and develop their own policies to increase customer satisfaction. He says,

“It’s a shame to legislate something that can’t be legislated, like weather.”

So what will happen to Southwest in the future? After purchasing AirTran, the airline is now poised to begin international flights. Time will tell whether this move adversely affects Southwest’s commitment to simplicity or is the beginning of a new level of profitability.

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