To address your second point, how is it that Southwest can consistently provide friendly service? They have to deal with the same stressors that their competitors face.

Don't underestimate the importance of leadership and management prowess in how employees perform.

South West management hedged fuel in a risky financial bet which paid off when fuel prices unexpected skyrocketed in the mid 2000s. This risky bet led to industry leading profitability. Once South West's hedges came off their profitability has declined. They are not burdened with the same debt because they had profitability for so long. They also do not maintain a hub and spoke system which keeps their costs down.

Because management got lucky with a fuel hedge, their employees did not have to take pay cuts like the rest of the industry and have not lost their pensions.

For additional information read this (ignoring the stock price stuff, just for a little history)

”Mr. Alukos says the AirTran acquisition makes sense in the context of rising fuel prices. For many years, Southwest hedged rising fuel costs better than any other large U.S. airline, saving $2-billion from 2004 to 2008 by his estimate, something that “overshadow[ed]any of its other cost-containment measures.” Those contracts have gradually expired, and the current hedges are no longer a significant cost advantage, he believes.” Source: http://www.theglobeandmail.com/globe-investor/investment-ide...

[added] I didn't really answer your question, but I believe that number 2 combined with number 3 to create the problems we are seeing at most airlines. People can handle a lot until they realize when they get home they have no savings, no retirement and no future.

Southwest has been around for 45 years. I haven't looked at their P&L for those years, but I doubt that their key to longterm success is due primarily to hedging at the turn of the century. Hedging fuel costs is simply a part of doing business in the transportation field, whether it's shipping, airlines, trains, or trucking.

Also, many posters have said that Southwest is non-union. This is incorrect. Their pilots are part of a union, just not the ALPA.

The airline industry has dramatically changed since the days of PanAm and Braniff. Ticket prices have been brutally cut, yet the "premier" airlines have been poor stewards of their image and reputation, and relied a lot upon heavy regulations in the industry that protected their turf. Unions have done some damage, but poor management has been the biggest culprit.

I agree in part that poor management has been the problem at many airlines, but the another real problem is that the airline industry has high fixed costs in a perfectly competitive environment. Before the airlines were deregulated in the 80s, ticket prices were high, everyone made money. The 90s ushered in low oil prices with strong US economic growth (good for cyclical businesses).

After deregulation oil stayed cheap until the mid 2000s. For whatever reason, South West hedged far more oil than industry practice and when oil went up dramatically in the mid 2000s the airline benefited dramatically. I have looked at their 10Ks, Qs, (P&Ls) and have studied the topic in some level of depth.

South West has a great culture, which could be unrelated to their profitability, but no one knows that for sure. Their profitability has far more to do with fuel hedging than any other single factor. My argument which cannot be proved, but I hope is considered is that the culture has more to do with the employees being compensated well, and the airline seeming stable than the reverse.

Southwest employees participate in a profit-share program which allocates a substantial amount of profits to an employee pool. Thus, the better the airline does, the better they do (financially).