Southwest Airlines: solid financial performance for FY2013, but challenges are piling up

Similar to most of its US carrier peers, Southwest Airlines recorded a strong financial performance for 4Q2013 and FY2013, reflected in its increase in profitability. The carrier heads into 2014 with a positive outlook for the US economy and is encouraged by the continued stability in fuel prices.

But 2014 is also a pivotal year for Southwest as it completes its integration with AirTran, which is pressuring the carrier's unit cost for the year. Southwest also remains locked in contract negotiations with its five largest unions that represent nearly 99% of its workforce. The prolonged negotiations are taking a toll as some unions - seeking a share in the profitability - express their displeasure in what they deem as souring employee relations.

In a much broader sense, Southwest's business model is increasingly harder to define in a US market place that is evolving to three large network carriers, hybrid airlines and no-frills ultra low-cost carriers. Southwest does not fall into any of those categories; and while it publicly declares that to be a benefit, the reality is its once-competitive advantages may be dimming in the new realities of the US market place.