Southwest Airlines (NYSE: LUV) went from being a tiny regional airline to a major low-cost carrier under former CEO Herb Kelleher. He must not be very happy these days.
Southwest announced that its growth was slowing (subscription required) and that revenue for the next quarter would be disappointing. Other airlines including Northwest (NYSE:NWA) are saying that they will have to cut capacity.
According to The Wall Street Journal, airlines are able to sell seats, but must offer large discounts because passengers have less discretionary spending due to economic problems including the slowdown in housing. And Southwest's jet fuel prices rose 47% last year as oil and gas prices moved up.
Southwest used to be able to handle cost problems better than most airlines because it only had to maintain a fleet of one type of plane, the 737, and its workers were the most productive in the industry. Low prices drew customers from large rivals especially American. The airline's share price had a huge run from 1980 to 2001, up from $.16 to over $20. But, the competition caught on and began to offer better fares on many routes and cut labor costs.
The price of success.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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