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VOL. 127 | NO. 77 | Thursday, April 19, 2012

Cox Calls Southwest Arrival ‘Game-Changer’

By Sarah Baker

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Larry Cox did his best in the fight to keep Pinnacle Airlines Corp.’s headquarters near Memphis International Airport and avoid it moving to Downtown’s One Commerce Square.

“I think I was the only person in the city of Memphis that was fighting to keep Pinnacle at the airport,” Cox, the president and CEO of the Memphis-Shelby County Airport Authority, said Tuesday, April 17, at the Certified Commercial Investment Members meeting at the Holiday Inn University of Memphis. “I think I’ll get some kudos from some people about that now.”

After more than 25 years at the helm of Memphis International, Cox has seen the peaks and valleys of the airline industry first-hand, tracing back to 1978 when Congress passed a bill to lift the federal government’s control of passenger and cargo aviation.

“It allowed for very little growth, very little activity,” Cox said. “Believe it or not, it was (FedEx founder and CEO) Fred Smith who convinced Congress to allow it. Beginning in the early 1980s, airlines could fly anywhere they wanted.”

Cox said up until the last decade, airlines were competing based on market share, running large airplanes seven days a week. But post-9/11, and during the economic slump of the last four years in particular, problems started to arise with fuel and labor costs.

“I look forward to the day when (Southwest’s) CEO comes down -— we’ll have a big party, a big celebration that they’re in Memphis.”

–Larry Cox, President, CEO of Airport Authority

“When the economy was high, they made good money,” Cox said. “But when the economy went down, they lost more money than they made in the good economy. If you look back through the whole history of the airlines and you take all of the years of commercial airlines, you have profits and losses, there’s still a net loss in the industry in the United States. It’s never been a profitable airline industry.”

Pinnacle and its subsidiaries are seeing the realities of those losses, as evidenced by its April 1 filing for Chapter 11 bankruptcy protection.

“When you grow an airline business, you buy somebody, so they bought Mesaba, which is not a very good airline,” Cox said. “Like a lot of airlines, they didn’t really plan on the cost it was going to take to integrate three different airlines into one.”

Cox said Chapter 11 is the right move for Pinnacle as it works to become a more nimble and efficient airline.

“They’re already smaller, so it’s probably going to be less people down at the headquarters and so forth,” Cox said. “Pinnacle’s a great company, we need them to survive and I think they will. It’s just going to take awhile to get through this bankruptcy process. It’s the norm in the airline business – if you haven’t gone bankrupt, you’re probably going to.”

What airlines have finally grasped, Cox said, is if they reduce supply and have the same level of demand, they can in turn raise their prices.

“This is something I learned as a freshman in economics at the University of Memphis,” Cox said. “Low and behold, over the last few years, the airlines have figured out – particularly the network carriers like Delta, American, United and US Airways – it’s better to shrink your business and make money because you can raise fares and pass it along to your increased costs in fuel, labor and so forth. That’s the whole reason why airfares have gotten so high.”

Cox knows that if a passenger takes a nonstop flight from Memphis to any destination, it’s going to be a pretty steep fare. He also knows that’s why many commute to Nashville or Little Rock to hop on a more economical direct flight.

But what he calls the “game changer” is Southwest Airlines’ purchase of AirTran Airways. Southwest just recently received its operating certificate from the Federal Aviation Administration that allows it to operate as one airline.

While it’s “easier said than done” – as seen by the five-year-long merger process it took United and Continental to become fully integrated – Southwest will eventually be all-coach seating and will opt out of making passengers pay to change tickets and other fees that cause aggravation.

The question now is: What will Southwest’s presence be in Memphis?

“I spend at least once a month with Southwest, working on what they’re going to be doing here, and one thing I can tell you is, they’re not going to put a hub here,” Cox said. “They only fly 150-, 160-, 170-, 180-seat airplanes and there’s not enough business here for them to fly to 50 locations. But we will get good service through some good markets. I look forward to the day when their CEO comes down – we’ll have a big party, a big celebration that they’re in Memphis because that’s the game changer. We won’t have to go to Little Rock or Nashville, anywhere because you don’t like the fares here.”

Cox urged the crowd to patronize Southwest in the event that other airlines like Delta Air Lines Inc. lower prices to compete.

“Do you remember when Frontier was here? Ultra low fares to about four or five cities,” Cox said. “Northwest matched their fares. AirTran matched their fares. They had great service, I flew them a lot, but they never had a full airplane. We all want Southwest to be here, but we also have to have some support of that airline. If they don’t have enough loyal Memphians that are willing to buy tickets, they’ll go elsewhere.”

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