Southwest Airlines

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REV: MARCH 11, 2003

JAMES L. HESKETT

Southwest Airlines 2002: An Industry Under Siege
Amid Crippled Rivals, Southwest Again Tries To Spread Its Wings; Low-Fare Airline Maintains Service, Mulls Expansion In Risky Bid for Traffic — Front Page Headline, The Wall Street Journal, October 11, 2001 The Age of “Wal-Mart” Airlines Crunches the Biggest Carriers; Low-Cost Rivals Win Converts As Business Travelers Seek Alternatives to Lofty Fares — Front Page Headline, The Wall Street Journal, June 18, 2002 Vaunted Southwest Slips In On-Time Performance; Airline Famous for Reliability Now Ranks Next-to-Last — Page D1 Headline, The Wall Street Journal, September 25, 2002 Having weathered an unimaginable series of events during the past 15 months, the top management team at Southwest Airlines engaged in a series of discussions late in 2002 intended to insure sound strategic decisions in the face of industry setbacks, volatile responses on the part of competitors, the preservation of a culture formed around a charismatic founder/leader who had turned over the CEO’s job to a successor, and a series of government directives that made it increasingly difficult for Southwest to implement an operating strategy that had differentiated it from its competition. As Colleen Barrett, president and chief operating officer, put it at one gathering of the top management team, “Recent events have made it increasingly difficult to live up to the promise to customers in our ads that ‘You are now free to move about the country.’” Changes in the airline operating environment after the terrorist attacks of September 11, 2001 were thought by some on Southwest’s management team to make it more difficult for the airline to maintain its distinctive competitive position. For example, industry bailout efforts by Congress were intended to help Southwest’s competitors that were in the worst financial condition. The need to respond to constantly changing security directives made it harder for employees to create and convey the Southwest SPIRIT. More recently, Southwest’s organization had increased efforts to maintain its relatively high on-time arrival performance levels while its competitors’ levels had risen. Southwest’s managers attributed this largely to the addition of time to competitors’ flight schedules, but it was creating the perception that Southwest’s service levels were declining in relation to those of its competitors. A series of important management decisions had positioned Southwest to resume its pre-9/11 growth. Just what form that growth might take was subject to discussion. ____________________________________________________________

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Professor James L. Heskett prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2003 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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Southwest Airlines 2002: An Industry Under Siege

The Southwest Story
Southwest Airlines was founded in 1967 by Rollin King and Herb Kelleher in response to a need for increased capacity on major travel routes between major Texas cities. Although the routes were served by large “through” carriers such as American Airlines and Braniff International, often there were insufficient seats on flights making intermediate stops in Texas while arriving from cities outside Texas or departing for destinations...
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