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.