Southwest Airlines

Christine Dao Katrina Elicagaray Kimberly Tran April Weir

Airline Regulation
1938 Civil Aeronautics Act Civil Aeronautics Authority (CAA) Its Mission

The Beginning
Founded in 1967
Founders were Rollin King, John Parker and Herb Kelleher

The Napkin Concept

DAL

SAN ANTONIO

HOUSTON

Herb, lets start an airline and Rollin, youre crazy. Lets do it!

Mission
The Mission of Southwest Airlines

To Our Employees

Executives
Headquarters in Dallas, Texas Current Leadership
Herb Kelleher Chairman of the Board and Chairman of the Executive Committee Jim Parker Vice Chairman of the Board and CEO Colleen Barrett President, COO, and Corporate Secretary

Top 3 Strengths
Structure
Operations

Culture
Beliefs Policies

Innovation

Southwest vs. the Majors

Debt

Pricing
Hub & Spoke Labor Costs Operations Understanding the Market Customer Service

Debt
Major airlines
High debt High daily losses Low cash

Southwest
Little debt Low daily losses High cash
Major airlines include Alaska Air, America West, America Trans Air, American, Delta, Continental, Northwest and United. Not included is US Airways, which is bankrupt and no longer traded on the NYSE.

Airline Aftermath How the sector has performed since 9/11

Carrier Stock % Change Since 9/11* -69% -94 -55 -55 Earnings Comparison Q2 2001 -$105 million -24 million -123 million -55 million Q2 2002 -$465 million -248 million -162 million -93 million

American US Airways Delta Northwest

Continental
Southwest United America West

-76
-18 -90 -76

42 million
176 million -292 million -15 million

-35 million
85 million -341 million -10 million

*As of Thursday, Sept. 5, 2002. **Excludes all charges. Source: Company reports, Baseline, TSC Research

Prices
Competition Seat prices Operation costs
Fuel Airport fees

Hubs vs. surrounding airports

Hub & Spoke

Labor Costs
Union vs. Non-Union
Salaries Labor costs as a percentage of revenues Employees per flight

Operations
Maintenance Training Boarding procedures

Airport Fees
Plane design Idle time Food Service

Operating Costs
Operating Costs
1000 800 600 400 200 0 JetBlue Southwest American Continental Delta America West Northwest United US Airways

Understanding the Market

Niche market
Long haul flights Short haul flights

Price sensitive High customer service needs

Customer Service
The Belief The Policies The Results

The Belief
Southwest people believe that customer service involves more than an objective understanding of the customers need. It also means, , being attentive to the person behind the need, and responding to the person more than just responding to the need.
NUTS! Southwest Airlines Crazy Recipe for Business and Personal Success by Freiberg & Freiberg

The Policies
Seating space
Boarding procedures
Ticketing Safety

Timeliness of flights
Amenities

The Results
Best on-time service + Best baggage handling + Best customer Service = Triple Crown Award 5 Years Straight

Southwest Culture

Information Technology and Systems

What Helps Keep Southwest on Top?

IT/IS Helps Business Strategy

Deploys Enterprise Software PROS Revenue Mgmt.
CALEB Technologies Corps CrewSolver Software

I2 Service Inventory Management

Computerized Reservation System RAPID CHECK-IN Automated boarding passes

Focused Cost Leadership

High frequency, short hops Low fair strategy Cost-effective inventory management Efficient and cost-effective recruitment Unique, high level customer service

What Major airlines are doing to compete

Cutting jobs Retiring older planes Streamlining routes In the future, closing hubs

Combating Competition
Structurally competitive through Operations Successful in utilizing Information Technology and Information Systems

Creating a culture of Innovation and Great Customer Service

Southwest
Beating the Competition

Thank You