Southwest marks 40 years in pivotal markets as it plots post-pandemic course

Southwest Airlines is feeling nostalgic.

The airline celebrated its 50th anniversary in 2021, as it reached what its leadership sees as a crucial juncture in the airline's evolution.

As it starts its 51st year, Southwest is making a big push for managed business travel; the airline is growing and revitalizing its fleet as it continues to take delivery of its massive Boeing 737 Max orders; it's looking to finally see consistency in its Hawaii venture after two rocky pandemic-defined years; and coming off the heels of a massive expansion that added 18 new markets, it's looking to buffer its network by building up frequencies lost to the pandemic and the expansion.

To top it all off, the airline's longtime CEO, Gary Kelly, is stepping back and will be replaced by another longtime Southwest executive, Bob Jordan. Kelly will still continue as executive chairman of the board of directors, which will see him leading the airline's broader strategy.

With big plans and big changes ahead as Southwest looks forward to its next chapter, nostalgia has it also looking back in time.

Southwest's 2022 anniversary isn't as significant as the one it had in 2021, but it's certainly up there, chief commercial officer of the airline and bona fide AvGeek Andrew Watterson told TPG in a recent call.

More: Southwest expanded like wildfire during 2021. Here's its plan for 2022.

It was 40 years ago on January 31, 1982, that Southwest launched service from Las Vegas, Phoenix and San Diego. These were not the airline's first markets outside of Texas, but they represented an aggressive westward expansion that formed a cornerstone of Southwest's current system.

"We're number one in all three cities," Watterson said. "And they're all really pillars of our network."

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(American Airlines is larger than Southwest in terms of number of flights, according to data from Cirium, but Southwest tops American in terms of number of passengers carried, according to Phoenix Sky Harbor International Airport).

"If you look at the 18 new cities we started during the pandemic, and Hawaii, a lot of them touch these three," he said.

The three markets made sense at the time, even without the eventual broader growth in mind.

Las Vegas is, well, Las Vegas. It was a different scene at the time, rougher and less family-friendly, with the transformation to the big, corporate-backed spectacle of today just getting started — in Martin Scorsese's "Casino," which ends around 1979, Robert De Niro's character closes the final scene of the movie lamenting the start of this change.

Nevertheless, it was a destination in its own right when Southwest launched service from Houston and Phoenix, with plenty of demand to capitalize on — demand which would grow over the following decades.

More: Is Canada next? Retiring Southwest CEO Gary Kelly discusses carrier's future

San Diego was Southwest's first destination in California, and the start of a legacy. In 2002, according to Watterson, Southwest became the biggest airline in the state, and it remains the largest today in terms of number of flights. According to data from Cirium, Southwest had 260,284 scheduled flights from California in 2021. United Airlines was the second biggest carrier out of California last year with 206,672 flights.

San Diego was a logical entry point into California thanks to its proximity to the rest of the airline's network. Southwest added service to Los Angeles and San Francisco in the second half of the year.

"We started life as a short-haul carrier with a heavy business concentration" along with demand from passengers visiting friends and relatives, Watterson said. "As we went out west, these were shorter-haul markets, so our model worked well, with fares, frequencies and fun."

Phoenix has become a top focus city for Southwest over the past 40 years, and it will have a new concourse with additional gates open later this year.

"Phoenix is one of those markets that's both business and leisure," Watterson said. While leisure demand is seasonal, "it's a year-round business market, so our short-haul business relevance is something that we value."

More: Exclusive: Southwest wants business travelers and will double down on them as it recovers from the pandemic

While Southwest has expanded more broadly around the U.S., and added additional focus cities such as Denver and Baltimore, the three cities that Southwest began servicing remain crucial to the airline's network planning, Watterson said, making them reliable points to connect new markets like the 18 that were opened last year.

"We have big customer bases in all three," he said. "So when you add a flight, you have a customer base already built in. We have customers there that know us and love us."

"That strength really empowers us when we need to expand our network," Watterson added. "This time, we did it when the chips were down, so to speak, because of the pandemic. And so the fact that we plugged into these three so much shows how they're still very relevant to us."