DBEA55AED16C0C92252A6554BC1553B2 Clicky DBEA55AED16C0C92252A6554BC1553B2 Clicky
July 19, 2024

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Elliott Investment Management‘s move on Southwest Airlines continues to elicit industry chatter. The initial reaction was surprising, but it soon became accepted that Southwest needed a shakeup.  A key argument of this thinking goes like this: when you also consider that only one out of eight of the company’s top executives have worked anywhere else but Southwest Airlines, you get a sense of where the staleness is coming from.

Moreover, when the former CEO is still connected to the company as the board’s chairman, there is the danger of creating an echo chamber that lacks the benefit of external input.  Sounds reasonable, right?

Is there any data that supports this?  Does operational data support the idea that Southwest Airlines is operated at a sub-optimal level?

Let’s start with the DoT’s Ontime dataset to see how the airlines stack up.

DoT; AirInsight

Southwest arrival delays are below average, which is a positive outcome, especially considering it is the largest traffic carrier in the domestic market. Looking at the Ontime data for the first quarter of 2024, we see that Southwest performs comparatively well.

DoT; AirInsight

The data suggest that Southwest operates a better-than-average schedule performance.  Reviewing schedule padding, we see that Southwest pads more than its peers. This is not a positive.

DoT; AirInsight

Next, what does Southwest’s cost look like compared to its peers?

DoT; AirInsight

Among the Big Four, Southwest is the low-cost producer. It’s not the lowest cost overall, but it’s still ~13% below the industry average. Given the critical mass Southwest brings to the market, it can deploy that cost advantage across a wide swath of the market.

To its credit, Southwest’s crews try to save time, as the table shows.

DoT; AirInsight

Southwest traditionally focused on the 737-700 for most of its capacity but now has more -800 and MAX8s in service. Yet this gauge growth does not seem to have been a negative. The airline operates at high load factors of around 80%

DoT; AirInsight

Moreover, the MAX 8 helps drive up the average stage length and lower fuel burn.

DoT; AirInsight
DoT; AirInsight

When Southwest is compared with its industry peers regarding fuel and total air costs, we can conclude that the airline is performing well.

DoT; AirInsight

One last table shows operating costs per air hour, and Southwest has the lowest operating cost per air hour.

DoT; AirInsight

Summary

Is there room to improve Southwest’s operations? Yes, but it would be at the margins. This industry is very competitive, and competitive advantages emerge quickly. The same applies to disadvantages. The operational data shows Southwest is at least as competent as its peers, and by several measures, it is the best operator with the lowest cost.

It could be argued that Southwest’s biggest challenges are perhaps at a strategic level.  For example, should it stay with one aircraft model? Can Southwest exploit technology better than it does?

The numbers don’t reflect the corporate culture. And we submit that even with all the tweaks needed, and there are several, the corporate culture keeps the airline operating so effectively.  If that culture gets disrupted, then all bets are off.

author avatar
Addison Schonland
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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