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Southwest Invading Minneapolis Stronghold

Stocks in this article: luv dal

"A lot of people want to go to Minneapolis from Southwest cities like San Antonio and Nashville, and those people can go through Midway," says consultant Mike Boyd.

While Southwest will initially serve only the Midway route, it is worth noting that of the top 10 destinations from Minneapolis, six are Southwest cities, including Chicago, Detroit, Denver and Phoenix. Additionally, Southwest's three busiest airports, in Chicago, Phoenix and Las Vegas, are all in the top seven destinations from Minneapolis."Connect the dots," Boyd says.

Although it has recently slowed its growth, in the long run Southwest must expand. Growth is Southwest's primary tool to keep costs low, because that brings new airplanes and low-seniority employees.

"Southwest can't generate contract productivity unless they grow more rapidly, which they have not recently done, which creates the appearance that they are a hedge fund, not a real airline," says aviation consultant Bob Mann. In the third quarter, excluding one-time items, Southwest reported a $69 million profit only because it realized cash settlement gains of $448 million from fuel hedging.

Once known for choosing midsized airports such as Birmingham, Louisville and Raleigh-Durham, Southwest has altered its focus in recent years. It went to the US Airways (LCC) hub in Philadelphia in 2003 and to UAL (UAUA) hubs at Denver and Washington Dulles in 2006.

Boyd says that as Southwest gets bigger, it needs to be in larger markets to have a relative impact on its bottom line. But more sizable markets also mean tougher fights for market share. For instance, US Airways was on the ropes when Southwest entered Philadelphia, and it has gone through two bankruptcies since. But instead of shutting down, as some expected, US Airways emerged as a stronger carrier with lower costs.

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