29 June 2007

Southwest Hits Wall, Ryanair Next?

For some time we have been saying to our investor clients that the problem of growth would eventually reach the point of good old diminishing marginal returns. Southwest has finally admitted that this has happened to them. The core problem is one faced by other sectors – such as Microsoft – in that the ROI starts to decline over time due to effective saturation. For WN this means that they will now have to address the issue head on.

What we find curious is that WN doesn’t want to hit the competition head on. So the slowdown in growth is an acknowledgement of this. However WN has one ace up its sleeve. That is its planes. WN can fly the longest commercial routes in the county (eg SEA-MIA) with its 737-700s.

For WN we shall see them looking hard at Revenue opportunities and only dealing with the ones that make sense.

There is a lesson here for other LCCs. Chaps – sooner or later you will hit the wall. AirTran and JetBlue – I hope you are listening. Fortunately for Mr O’Leary – this problem is several years away. Long after he has left the CEO slot at FR.


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