Why did Southwest Airlines change its view on the Grand Rapids market?


Airports served by Southwest Airlines tend to see lower fares and increased passenger traffic — a result dubbed “The Southwest Effect” by The U.S. Department of Transportation. © iStockphoto.com

When Southwest Airlines converts its existing AirTran service at Gerald R. Ford International Airport this Sunday and adds two new destinations, it will mark a complete shift in how the carrier viewed the Grand Rapids market for years.

That's because for more than a decade, some of the community’s most prominent leaders had been working to attract Southwest to the market, to no avail.

So what changed?

“For three decades, at Southwest Airlines, the rule-of-thumb criteria was that if a market like Grand Rapids could not support a minimum of eight to 12 flights a day, then in a Southwest Airlines type of operation, we could not get the economies of scale that we needed to justify entry into the market,” said Ron Ricks, Southwest Airlines executive vice president.

“We never in my career at Southwest, which is 32 years, entered a market with less than eight flights per day, to my knowledge,” he added.

Point A to point B

Ricks explained that the reason was Southwest’s operating model as a point-to-point carrier.

While other airlines operate as hub-and-spoke carriers, Southwest has essentially done the opposite, relying on its point A to point B service.

“If you go back 20 or even 10 years ago, you would see that 80 percent of the passengers on a Southwest Airlines flight were flying nonstop from point A to point B and 65 percent of our competitors passengers were flying from point A to a hub at point B and then transferring to a flight to point C,” Ricks said. “In other words, we were the complete flip image from a hub-and-spoke carrier.”

AirTran insight

With the acquisition of AirTran, which followed the hub-and-spoke carrier model, Ricks said Southwest was able to understand how operating in a market with less than eight flights could be successful.

“When we acquired AirTran and had a chance to incorporate their people and their data into our system, we were able to say, ‘Well, how did you do that? How did you serve Grand Rapids with three flights a day and make that work?’ It enabled us to re-think that rule of thumb or paradigm and see how it could be done differently,” Ricks said.

Southwest realized that by connecting Grand Rapids to its network, there was actually growth potential, which is why in addition to continuing the Baltimore and Orlando service, it decided to add Denver and St. Louis, connecting Grand Rapids more fully with its western and southeast service networks.

“The AirTran model, once we understood it, they were able to show us if you connect up the point A, in this case Grand Rapids, with more point Cs, with the connectivity over point Bs — Baltimore, Orlando, Denver and St. Louis — then you can make a smaller market work,” Ricks said.

Hybrid carrier

Despite embracing the hub-and-spoke model more widely in markets like Grand Rapids, Southwest is not planning to widely incorporate that transportation method.

“The artistry of it was doing that without changing Southwest Airlines’ core essence as a point-to-point carrier and becoming a hub-and-spoke carrier, which we do not want to do. So we are kind of a hybrid that probably has no parallel in the industry,” Ricks said.

“Southwest, now that we have evolved our model to connect more passengers, we’ve gone from say 80 percent nonstop to say 70 percent,” he added. “So, still today, around 70 percent of our passengers fly nonstop from point A to point B, but the number of passengers that connect on us, around 30 percent, have become more important to Southwest and it is that connectivity that makes a smaller market like Grand Rapids work.”

Other markets where Southwest is testing out this new hybrid model of operation include Flint, Memphis, Tenn., Wichita, Kan. and Rochester, N.Y.

Ultimately, whether the model is viewed as successful or not will be judged by how many people are flying and how much they are paying for those flights, he said.

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