- The Washington Times - Saturday, October 6, 2001

DALLAS (AP) Top Southwest Airlines officials holed up in the company boardroom In the hours after terrorists seized four jetliners and tracked about 260 of their jets still in the air.

Federal officials had ordered all planes grounded. When the last Southwest jet landed safely at Dallas Love Field, the 20 or so employees, including Chairman Herb Kelleher and Chief Executive James Parker, broke into cheers.

Then they turned to the realization that air travel wouldn't be the same after Sept. 11, that passengers would be skittish about getting back on a plane.

"We were worried about, what cash do we have? Where is it? Can we get it?" Chief Financial Officer Gary Kelly said. "We had $1 billion in cash on Sept. 11. I was worried it would go to zero."

By the next morning, Southwest had tapped a $475 million line of credit with banks and had called Boeing Co. to postpone taking 11 more 737 planes, worth about $30 million apiece including one that had been scheduled for delivery Sept. 11.

Analysts say this slavish devotion to cash and financial fundamentals helps explain why Southwest avoided layoffs and maintained investor confidence during a crisis while its rivals were battered.

"By far they had the strongest balance sheet in the industry," said Ray Neidl, an analyst with ABN Amro. "They might have been the only carrier that could have survived without government assistance."

In an industry where heavy borrowing to buy expensive aircraft is common, Southwest had a net debt-to-capital ratio of 33 percent compared with 59 percent at American Airlines' parent company, 66 percent at United's parent and 88 percent at Continental, according to Salomon Smith Barney.

In the first few days of trading after the attacks, investors hammered airline stocks, some of which lost two-thirds of their value and only regained ground after it became clear that Congress would approve a $15 billion bailout. Each of the airlines is eligible for the bailout money.

Through Thursday, shares in Houston-based Continental had fallen 55 percent since Sept. 11, and stock in Fort Worth-based American, United, Delta and Northwest had lost 25 to 40 percent.

Dallas-based Southwest, with the largest stock-market value in the industry, saw its shares fall less than 8 percent.

With the credit it drew upon, plus $144 million in federal aid, Southwest now has $1.5 billion in cash to cushion $120 million in losses since Sept. 11, Mr. Kelly said.

He said the burn rate has slowed to less than $3 million a day and ridership climbed to 53 percent last week, compared with 66 percent a year ago.

The break-even point, he said, is between 55 percent and 60 percent.

Southwest had clung to its daily schedule of 2,800 flights, despite 20 percent cuts at the other major carriers.

The other carriers have also announced 100,000 layoffs, but Southwest has avoided job cuts and made a $180 million contribution to its employee-retirement plan on schedule on Sept. 14.

"We're very far away from considering layoffs," Mr. Kelly said, while adding that Southwest will "keep all options open. We're not out of the woods yet, and we're not sure we're going to know when we are out of the woods."

The president of the union representing Southwest's 6,700 fight attendants said the absence of layoffs a promise made early on by Mr. Parker and other top executives would pay off in better labor relations.

"They made it clear that their first priority was to protect the jobs of people that were already here," said Thom McDaniel, president of Local 556 of the Transport Workers Union. "They immediately took a cautious approach, cutting anything nonessential that they could."

Southwest says it will actually hire more flight attendants this fall. The airline had 400 unfilled positions before the attacks, preferring to pay overtime rather than hire more employees who would be eligible for benefits.

The airline has made a profit every year since 1973, even during the early 1990s, when the industry lost about $6 billion in two years.

In the first half of this year, only Continental and Southwest earned money, and analysts now expect Continental to fall into the red for the full year. But they still look for Southwest to earn 53 cents per share, or about $400 million, according to a survey by Thomson Financial/First Call.

Some analysts have questioned whether tougher security rules at airports will delay Southwest's quick turnaround times and add to costs.

Southwest operates mostly short-haul flights to smaller secondary airports and eschews the hub-and-spoke system of connecting flights used by other carriers.

Some analysts think Southwest is more vulnerable if travelers decide driving is safer than flying.

"The airlines that are going to hold up the best in our opinion are those with big hubs located in large cities," said Brian Harris, an analyst with Salomon Smith Barney, who believes Southwest will lose 8 cents per share in the fourth quarter. "It's much easier to recapture traffic in those hubs."

Southwest has put some of its expansion plans on hold. It says it will begin service in Norfolk as planned this fall but only by taking planes off other routes.

It continues to cut costs, including a reduction in travel-agent commissions that it figures will save $40 million. Mr. Kelly said Southwest will make any changes necessary to survive in the new, post-Sept. 11 airline world.

"Were not static," he said. "We can innovate."

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