Southwest Airlines Case Analysis

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Southwest Airlines

Executive Summary

“The U.S. airline industry had lost money in 14 of the 28 years from 1980 through 2007, with combined annual losses exceeding combined annual profits by $15 billion. Yet in July 2008, Southwest reported record quarterly revenues, its 69th consecutive quarter of profitability, rising passenger traffic on its flights, and a record load factor.”5 With a brilliant strategy of ‘low cost/low fare/no frills’ Rollin King, along with Herb Kelleher, launched the most surprising success story in airline history. In 1966, King had an idea. “His business concept for the airline was simple: attract passengers by flying convenient schedules, get passengers to their destination on time, make sure they have a good experience, and charge fares competitive with travel by automobile.”5 Southwest airlines started by only flying between Dallas, Houston and San Antonio. But, before they even began, major airline carriers, threatened by the competition, held Southwest’s arrival into the market until 1971. Then with a small initial public offering, private investors and special deals made with Boeing, Southwest was finally off the ground. Even with legal and financial problems in the beginning, “morale and enthusiasm remained high; company personnel displayed can-do attitudes and adeptness at getting by on whatever resources were available.”5 The key to success in the airline industry was not only low prices but market visibility. Southwest was willing to take risks to gain that visibility by employing gorgeous flight hostesses who wore colorful hot pants and knee-high boots which attracted customers, free alcohol to any ticketholder over 21 and their wildly popular “LUV” campaign. “Southwest reported its first-ever annual profit in 1973.”5

1981- 27 planes, $270 million in revenues, 2100 employees, 14 destination cities 1984- Ranked #1 in customer service for the 4th straight year 1988- 1st 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 airline to record both operating and net profit 1994- Introduced ticketless travel

1998- Named best company to work for in America by Fortune magazine 2007- Became largest airline in terms of passengers carried and is profitable for the 35th consecutive year. BusinessWeek’s ‘Customer Service Champs’ and ‘Overall Best Airline’ by Frost & Sullivan’s CEO Leadership Forum 2008- Southwest is the only airline still offering all-inclusive pricing5

Southwest is a model for how to deal with problems and setbacks and still succeed. But, there is always room for improvement. Southwest garnered extra customers through their all-inclusive fares and this success could be continued by partnering with local restaurants and hotels to offer extra incentives to fly with Southwest. Also, increased advertising to the higher-end markets promoting their Business Select options, an increased effort to expand internationally through acquisition, and keeping the culture of superior customer service a priority will help stabilize Southwest at the top.


General Environmental Analysis

Southwest Airlines has weathered numerous economic storms since its beginning. The airline has found a way to maintain profitability during economic downturns even as other airlines were flailing. They succeeded by relentlessly pursing operating efficiencies ranging from small details like serving peanuts and not full meals to operating the same airplane model across the entire company. Southwest Airline’s relentless quest to have the lowest fares combined with their organizational culture has made them the largest domestic carrier in the United States by passenger volume. These characteristics have made Southwest profitable in the face of outrageous oil prices, increased regulation and a downturn in the...
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