Southwest Airlines Case Analysis

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Southwest History

1966: Rollin King marched into Herb Kelleher’s law office with a plan to start a low-cost/low-fare airline that would shuttle passengers between San Antonio, Dallas, and Houston. Thought of this idea because businessmen were complaining about the commute.

1967: Kelleher filed papers to incorporate the new airline and submitted an application to the Texas Aeronautics Commission for the new company to serve Dallas, Houston, and San Antonio.

------4 year legal and regulatory battle from rival airlines------

1971 (January): Lamar Muse brought in as the CEO to get operations under way. Boeing supplied three new 737s, discounted price by $1 million (5>4) and financed 90% of the $12 million deal.

1971 (June): Southwest initiated its first flights with a schedule that soon included 6 round-trips between Dallas and San Antonio and 12 round-trips between Houston and Dallas. Disappointing results despite only $20 fare compared to rivals $27-28. Their funds stretched thin and they were putting fuel on Muse’s credit card. Employee morale was high.

1971 (November): Muse came up with idea to offer $10 fare to passengers on the Friday-night Houston>Dallas flight. The flight sold-out without advertising. Muse came up with a two-tier on-peak and off-peak pricing structure. BEGINNING OF THE NO-LAYOFF POLICY, they have never laid off or furloughed any employees.

1972: Moved flights in Houston from the newly opened Houston Intercontinental Airport to the abandoned Houston Hobby Airport (for money and location reasons).

1973: Reported its first-ever annual profit in 1973. Introduced a profit-sharing plan for senior employees (first in the airline industry)

-------Rest of the 1970s consisted of legal battles-------

1977: Listed on the NYSE

1978: Muse resigned; Howard Putnam became CEO after Kelleher turned down the offer.

1979: First route outside Texas (New Orleans)

1981: Putnam resigned; Kelleher became CEO. Southwest had 27 planes, $270 million in revenues, 2100 employees, and 14 destination cities. Kelleher did not run from his office but among the troops. 1983: 3 additional Boeing 737s purchased; Southwest flies more than 9.5 million passengers.

1984: Southwest is ranked first in customer satisfaction among the U.S. airlines for the fourth straight year.

1985: Service begins to St. Louis and Chicago Midway. Southwest named the Ronald McDonald House as its primary charity (a pilot lost his daughter to leukemia).

1986: Southwest flies more than 13 million passengers.

1988: Southwest becomes the first U.S. airline to win the Triple Crown (best on-time record, fewest reports of mishandled baggage, and fewest complaints per 100,000 passengers) for a single month.

1990: Revenues reach $1 billion; only major U.S. airline to record both an operating and a net profit. The Culture Committee was formed to promote “Positively Outrageous Service.”

1992: First annual Triple Crown; second-year running they were the only major U.S. airline to record both an operating and a net profit.

1993: Begins operations on the East Coast and wins second annual Triple Crown; revenues exceed $2 billion and profits exceed $100 million. Third consecutive year of being the only U.S. airline to record both an operating and net profit.

1994: Introduced ticketless travel in four cities; third Triple Crown; acquires Morris Air (Salt Lake City)

1995: Ticketless travel becomes available system-wide; fourth consecutive Triple Crown.

1996: Service to Florida begins; fifth consecutive Triple Crown; ~$740,000 to RMDH

1997: Service begins to Southwest’s 50th city; more than 50 million people fly Southwest.

1998: Named by Fortune as the best company to work for in America

1999: Service is added to three more cities.

2000: # of passengers exceeds 60 million; revenues surpass $5 billion; 28th consecutive year of profitability; 9th consecutive year of increased profits;...
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