Charm has always been at the center of Southwest Airlines Co.'s sky-high success, from the breezy humor of its cabin crews and its clever advertising campaign ("Wanna get away?") to its legendary numbered plastic boarding cards, which ensured that the best seats went to early arrivers. Perhaps more than any other airline, Southwest has reflected the clientele it primarily serves: leisure travelers excited about their trips and happy to sacrifice luxury for lower airfares and casual service.

The keep-it-simple philosophy has served Southwest well. No domestic airline has as low an operating cost structure, and neither can any carrier match its record of 32 consecutive years of profits. But as its own business grows--and grows more complex, with plans to purchase dozens of new aircraft and an expected upsurge in passenger traffic--the simplicity strategy that also has been reflected in the airline's IT philosophy is evolving. "It's time to adapt our business processes for efficiency," CIO Tom Nealon says. "As our airline scales, for us to provide the same kind of high-touch customer service, we have to automate a lot of things we've been able to do without technology previously. The challenge is doing that without conceding the customer touch."

Southwest's IT budget is shrinking by design, CIO Nealon says. Photo by Nancy Newberry

Until now, Southwest's IT deployments have been focused on enhancing, not just automating, the front end of customer relationships. These include its pioneering Southwest.com Web site, now its predominant distribution channel, responsible for more than $3 billion annually in bookings; Swabiz.com, the business travel portal it launched in 2000 (see story, " Business: Southwest Isn't Just For Leisure Travelers "); the self-service kiosks it began rolling out three years ago; and the Gate Reader software it installed in 2003 to keep gate agents up to date on passenger status and special needs. Most recently, the airline launched Ding, an applet that pushes the airline's best deals to people's desktops.

But in many areas, Southwest has been a technology laggard compared with other airlines, many of them struggling for survival, that looked to IT to improve core operations. (For more on those airlines' strategies, see "Customer Connections," March 14) It simply didn't see itself as big enough to need IT to automate aircraft maintenance, for example, or an extensive customer database to improve loyalty efforts.

To some degree, the airline has achieved cost benefits by not investing in too broad a portfolio of technologies, says Forrester Research analyst Henry Harteveldt. Yet, the days when even Southwest can get by with that philosophy are ending fast. "As they become more complex, they've got to wake up and start getting it together," Harteveldt says. "If you're trying to remain profitable while the rest of the world is swimming in red ink, you can't do that without technology."

Southwest CEO Gary Kelly seems to agree. "In many ways, our technology is ahead, but technology at our airports has been behind," he said last week during a speech at the Goldman Sachs Transportation Conference in New York. Now, "throughout our organization--finance, back office, managing flight crews, maintenance crews at hangars--we're employing more and more technology tools."

Southwest, which recorded net income of $313 million last year, anticipates 10% annual growth during the next two years in passenger traffic, now at some 70 million fliers annually. Southwest also expects to add 59 aircraft to its 420-plane fleet over the same period. To keep up, the airline is transforming itself into an automated powerhouse, so that it can manage passengers more efficiently, know customers better, and shorten the time aircraft spend out of service.

That doesn't mean Southwest is splurging on IT. In fact, its technology budget is shrinking. "It's declining at my request and my pace," CIO Nealon says, though he wouldn't provide specifics, saying only that Southwest's IT budget as a percentage of revenue has been flat for the past four or five years. "Southwest isn't opening the wallet and saying, 'We're behind, go catch us up.'"

One cost advantage Southwest has is that the only way for passengers to book flights online is to use the airline's Web site. It doesn't have to integrate with legacy global distribution systems such as Sabre Travel Network that would require it to calibrate its reservations system to load updated fares continuously into the legacy systems and check those systems and travel-aggregation sites to make sure fares are in line with what it's charging on its own site. Southwest expects to save money by building systems on a services-oriented architecture designed to reuse software components, with the help of a messaging layer from Tibco Software Inc. that lets applications and services communicate.

The environment is changing fast for a company that "has been somewhat technology phobic," says Don Harris, director of airport solutions. "We're getting more comfortable with technology." Southwest has to. Travelers want the airline to increase its kiosk presence, for example. That means those kiosks need features that will make them as responsive to fliers as ticket agents would be, and Southwest plans to roll out new features on them, such as itinerary changes and bookings, later this year. As traffic grows, self-service stations will outnumber agents, requiring that customer interactions become more efficient, CIO Nealon says. "The innovation you're seeing now in the concourse is proactive," he says.