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Southwest: No Frills, All Profit

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Airline soars above competitors with cost-saving measures.

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Southwest Airlines (LUV) operates with all the grandeur of a bus company and whizzes by its competitors to consistent profitability.

Its down-home philosophy: One size fits all.

That includes flying nothing but Boeing (BA) 737s to reduce maintenance costs. Southwest's simple fare structure also helps: it lets customers know they've gotten a good price, and keeps them from having to paw through endless pages to book a flight. It also cuts administrative costs.

Southwest flies point-to-point, avoiding the traditional hub-and-spoke system that gathers passengers from the hinterlands, then flies them to a major airport where everyone scrambles for flights on to their final destination. This allows Southwest to avoid congested airports, keeping its planes in the air longer each day, generating income.

There are no assigned seats on Southwest and only one class of service, further simplifying its reservation system. Passengers can check two pieces of luggage free of charge. The airline has never offered in-flight meals; even the snacks are as basic as they come. This tactic keeps costs down and makes it easy to restock planes when on the ground.

Southwest hedged its bets on fuel, now a major concern with oil trading at about $140 a barrel.

While the competition cuts back, Southwest plans to add flights to its schedule this year, including Denver to Orange County, California (three daily round-trip flights); Denver to Tulsa (two flights); Fort Myers, Florida to St. Louis (one flight); and Fort Lauderdale to Las Vegas, Kansas City and Albany (one flight to each destination). Schedules were reduced, however, at Chicago Midway, Oakland and Phoenix.

Southwest Airlines has been profitable since Gerald Ford was president, although net income fell to $34 million in the first quarter, as compared with $93 million for the same period last year.

Southwest's stock recently fetched $13.45 a share - not exactly at the the level of Internet stocks during the dot-com mania, but way better than American Airlines (AMR) at $5.53; United Airlines (UAUA) at $4.80; Delta Airlines (DAL) at $5.58; Continental Airlines (CAL) at $9.75; Northwest Airlines (NWA) at $6.81 or JetBlue (JBLU) at $3.50.
No positions in stocks mentioned.
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