Southwest's INSANE Profitability Streak, Explained

u.s airlines don't exactly have the greatest reputation they are known for nickeling and diming passengers having terrible customer service and on occasion dragging folks off of planes literally but southwest airlines is an exception not only does it have a cult following of loyal customers but it also sports one of the highest employee satisfaction ratings amongst all u.s employers the airline is so confident in its ability to appease that the company decided to make their ticker symbol on the new york stock exchange love however its wide appeal isn't the airline's most impressive facet that's because the airline also happens to be the record holder for one of the most insane streets in commercial aviation history in an industry that's notoriously hard to make money southwest has remained profitable for 47 consecutive years how have they managed to do it let me explain for those of my viewers who aren't familiar with southwest let me give you a little background the airline is arguably the most prominent budget airline in the u.s carrying north of 150 million passengers a year to over a hundred destinations both domestic and international but southwest doesn't operate like a traditional budget airline as a matter of fact it offers many free perks that most legacy carriers charge for for instance the airline offers free in-flight entertainment they offer two free checked bags per passenger and they allow for free cancellation or alteration of your itinerary while southwest spares aren't quite as low as what you might find on ryanair or easyjet they are comparatively lower than other us carriers and yet they still offer all of these perks for free so in order to have turned a profit for 47 consecutive years southwest must be leveraging some other innovative tactics to stay in the green while there are many three of these tactics are highly visible and well known first southwest pioneered the famous 30 minute turnaround time most legacy u.s carriers give their ground teams about an hour between flights to offload and load passengers and bags but the longer a plane sits idle the fewer paying passengers it's carrying by cutting the typical turnaround time in half southwest is able to squeeze in an extra flight or two per aircraft per day across their fleet of 700 planes that results in a whole lot of extra revenue second southwest leverages fleet commonality fleet commonality is the practice of standardizing your fleet by operating just one type of aircraft over the course of its 50-year history southwest has only operated planes in the boeing 737 family by simplifying their fleet southwest is able to streamline maintenance training and route planning it also helps to facilitate a strong partnership with boeing who's become very receptive to southwest's input when designing new airplane variants further the airline often receives sweetheart deals when buying new planes from the jet maker third southwest is very strategic when it comes to airport selection while the airline does serve a lot of large metropolitan areas they've also opted to build a larger presence at lesser served airports this is because highly trafficked hubs tend to charge a lot of money for landing and slot fees while also providing less flexibility when it comes to future expansion as a result southwest has favored airports like chicago's midway over o'hare and the bay area's san jose and oakland airports over san francisco now these three money-saving techniques work exceedingly well when the economy is booming but aren't enough to sustain profitability during times of contraction and having been around for 50 years southwest has seen its fair share of economic uncertainty one of the most dire periods for the industry where nearly every airline was losing money came during the 2000s energy crisis between 2003 and 2008 the price of a barrel of oil jumped 500 percent to over 140 considering that fuel costs comprise 25 of an airline's annual expenditures this bike should have immediately wiped out southwest's profitability streak but it didn't thanks to a little-known practice that southwest has used liberally throughout the years fuel hedging now hedging is a bit complicated to explain but you can kind of think of it like insurance for oil if an airline like southwest is worried that the price of oil is going to go up they can sign a contract to purchase fuel at a fixed price for months or years into the future let me give you an example say the price of a barrel of oil is 25 an airline might then sign a contract that pays a supplier 50 per barrel over the next five years regardless of what happens to the larger oil market while the airline is paying an above market premium in the short run it removes uncertainty surrounding one of their biggest expenditures and in the event oil prices do skyrocket they will be able to save a whole lot of money now southwest has always tended to hedge a greater proportion of its fuel needs relative to other u.s carriers and prior to the 2000s energy crisis southwest was one of the only airlines who is hedging their fuel needs for an extended duration once oil prices spiked southwest was in a position of strength paying just a fraction of what its competition was on oil its estimated southwest saved four billion dollars thanks to this approach and as a result its profitability streak lived on unfortunately none of southwest's money-saving techniques will be able to weather the coven 19 storm the drop in aviation demand is just too severe as a result it's almost certain that we'll see southwest's profitability streak end at 47 years despite this the airline is still beloved and is primed to bounce back once air travel returns to some semblance of normalcy so while southwest's remarkable and unprecedented profitability streak is about to come to an end they very well might be ready to start another one personally southwest has long been one of my favorite airlines and it's one that i can wholeheartedly recommend to anyone let me know what your favorite airline is down in the comments section below and if anyone from southwest is watching this video and wants to work together that'd be sick give me a call thanks so much to my patrons for helping to make this video possible and as always if you learned something new today leave a like and subscribe to keep learning and until i see you again don't forget to look up

Channel: Coby Explanes

Views: 103,873

Keywords: Southwest Airlines, Southwest, SWA, LUV, Southwest 737, Southwest 737max, Southwest 737 max, Boeing, Boeing 737, Boeing 737 max, 737, Southwest Profits, Southwest Profitability, United Airlines, American Airlines, Delta Airlines, Southwest vs Jetblue

Id: xg-GBmH6O2Q

Length: 7min 41sec (461 seconds)

Published: Fri Sep 18 2020