SOUTHWEST AIRLINES CASE STUDY

MARK ANTHONY MENIOSA

MMT BATCH 27

HISTORY

Southwest Airlines provides low-fare air transportation service among 58 cities in the
United States. Although the industry suffered a major blow from the terrorist attack of
September 11th, the company is still holding strong; while other airline companies are in debt.
The information was majority gathered and analyzed from the internet; sources such as "News
Week," and "Wall Street Journal." According to the acquired knowledge of Southwest, the
company maintains steady sales. The major success to their continued success is due to their
low-cost model and competitors are aware that they cannot match Southwest Airlines low prices
therefore, by dropping the price even lower; Southwest Airlines can force a company to go
bankrupt.

Introduction In 1971, Rollin King and Herb Kelleher started an airline service with one
simple notion: "If you get your passengers to their destinations when they want to get there, on
time, at the lowest possible fares, and make darn sure they have a good time doing it, people
will fly your airline." They were right about that. Southwest Airline is now a major airline, in fact,
the fourth largest airliner in the United States that is trading under the Symbol LUV on NYSE.

The mission of Southwest Airlines is dedication to the highest quality of customer service
delivered with a sense of warmth, friendliness, individual pride, and company spirit. It primarily
provides short haul, high-frequency, point-to-point, low-fare air transportation service among 58
cities (59 airports) in the United States.

Here are some numbers that will give a brief idea how the company is operating: Net
income: $241 million Total passengers carried: 63 million Total RPMs: 45.4 billion Passenger
load factor: 65.9 percent Total operating revenue: $5.5 billion The airline industry has been hit
hard by the terrorist attack of September 11th. There is a 13% insurance raise for the airlines
and the government is enforcing fees regarding security problems. The operation cost increases
dramatically and there are less people traveling by air. Most of the airliners are losing money
expect a few. Southwest is one of those airlines which have remained profitable.
 Organization of Southwest Airlines is described as an upside-down pyramid. The upper
management is at the bottom and supports the front line employees (~35000), who are the
experts. This is Herb Kelleher's unorthodox leadership style, in which management decisions
are made by everyone in the organization, not just the head executives. The company is
described to not have much emphasis on structure; instead employees are encouraged to think
freely without constraints such as titles. Kelleher, for example, is said to know the names of
virtually all his employees.

Southwest Airlines is characterized as a C-corporation with duration distinguished as a

normal perpetual existence. The shareholders are not normally liable for debts of the
corporation and they preserve an operation that is normally more structured, requiring more
meetings and (in some states) more reporting requirements. Management is very centralized
through the board of directors (elected by the shareholders) and the officers (elected by the
directors). The corporation is taxable entity, although the income which would normally be taxed
at the corporate level can normally be paid out in salaries (and in other deductible ways) so that
there is in fact no tax at the corporate level. As far as transferability of interest, it is normally fully
transferable and raising capital is in the choice of public companies.

Southwest Airlines values employees, initiating the first profit-sharing plan in the U.S.
airline industry in 1974 and offered it ever since. "In 2000, Southwest offered its employees a
record-setting $138M in profit sharing. This tax-deferred compensation represented an
additional 14.1 percent of each employee's annual salary.

STRENGHTS

1. Southwest Airlines is known to be one of the major low cost airline leaders and an
initiator in being a low cost carrier.

Southwest in the year 1994 was the second most profitable airline in the industry.
They did this by sticking to their simple formula of low prices, high service, and
low operating costs. .The airline was the best performer in terms of labor
productivity in the industry. Southwest does not need to match new price
increases. They need to focus on what their core competencies are and continue
to be Southwest.
 2. It is known to be one of the most profitable airlines in the industry.

There are five major carriers in the U.S. and they account for over 80% of the
airline market share. United is the largest airline with 22.1% market share and is
categorized as a major carrier. While Southwest is a national carriers with 4.4%
market share.

3. Strong customer focus

Southwest's commitment to customer service has led to an excellent track

record. The make sure passengers had a positive, fun flying experience. They
held the unofficial Triple Crown in customer service for three consecutive years.
The Triple Crown consists in being the best in on time performance, baggage
handling, and customer satisfaction. This is an amazing feat considering no other
airlines has held all three components for a single month.

4. Strong employee focus

The operative principle of the company was that employees comes first and
customers come second. The company’s thesis is simple: Keep employees
happy – then they will keep customers happy.

5. It operates a single type of plane, the Boeing 737.

This means that all their pilots, facilities, and crews are trained on any plane that
Southwest owns. Southwest also operates a fleet with an average age of 7
years. This means that they have less maintenance problems, and this leads to
fewer delays, and higher customer service.

WEAKNESSES

1. No international flights

Southwest only flies within the states of US it does not have international flights
yet. They are not a full service airline and do not offer the amenities and services
for international travellers. They also do not have a higher cost first class option
on their planes.
 2. No segment seating

There is no business class or 1st class seating arrangement.

3. The airline operates one type of aircraft

Though it would be easier for pilots and attendants to fly and operate one type of
aircraft, but in the long run it can become dull and boring. This would also mean
that passengers can look for other alternatives in terms of aircraft’s special
features and amenities.

OPPORTUNITIES

1. National and international markets

The airline has all the capacity to expanded their market more domestically and
also internationally.

2. First airline on the web

Southwest was the first airline to establish a home page on the Internet. Initially,
five Employees comprised Southwest’s web site development team, and the site
took about nine months to create.

3. Growth of leisure and business travel

The continuous growth of leisure and business travel will be a great opportunity
for the airline to have package promo to boost up their profit.

THREATS

1. Gas and oil fluctuation

Fuel prices are notoriously volatile.

2. Competition from the merging low cost carriers

Price cuts are tough medicine because the airlines will earn far less money, but
this method is effective at staving off competition from low-cost carriers.

3. Terrorist attacks
 Terrorism calls for a major threat to every airline industry and somewhat lowers
down travel. It also entails an effective practice of security measures for the
company.

STRATEGIC ISSUES

1. How to maintain its name as the low cost airline leader?

2. How to outcompete its rivals?

ACTIONS/RECCOMENDATIONS

The company must implement additional strategies to contribute to its growth and
development. In this way, the company will be able to innovate and develop to further render
service to their customers and retain loyalty and patronage to their existing clients.

One strategy the company can make is to increase its list of destination cities,
particularly international, and increase its services to those cities already being served and also
increase the number of its aircrafts.

Innovation of the company such as upgrading its information systems and programs will
enable the company to encourage and enhance its external and internal communication more
effectively. It would also enhance the company’s advertising and promotion means.