Southwest Airlines Case

Southwest Airlines 2002: An Industry under Siege

* Case Written in 2003

* Perception was that Southwest's service levels were declining in relation to those of its competitors

The Southwest Story:

* Founded in 1967 by Rollin King and Herb Kelleher in response to a need for increased capacity on major travel routes between major Texas cities

* The strategy was centered around costs low enough to enable Southwest to establish fares below the cost of driving a vehicle between the cities of Dallas, Houston and San Antonio

* 1st flight - 1971

* "Love Field" - name to get the attention of people

Competitive Response:

* Competitors: Braniff International Airways and Trans Texas Airways

* They failed on their initiatives to make it difficult for Southwest to get a foothold in the market

o Braniff offered tickets for $ 13 (at that time Southwest offered tickets for $ 26)

o Southwest customers could ask to pay either $ 26 or $ 13 for exactly the same seats

o Those requesting $ 26 tickets were rewarded with gifts

o 80% of customers requested $ 26 tickets

Southwest's Takeoff:

* After Congress passed the Airline Deregulation Act in 1978, making it possible for airlines to begin flying new interstate routes without regulatory permission, Southwest was ready to extend its route network.

* Acquisition in 1993: Morris Air (a regional carrier based in Salt Lake City)

* 2 different management philosophies:

o Morris Air's leadership had been successful in its efforts to avoid unionization

o Southwest embraced the idea of partnering with unions

* "Southwest effect" - Even at a time when the list of cities requesting the airline's service had grown to more than 50, Southwest chose to enter only 2-3 cities each year

* Southwest enjoyed 30 consecutive years of profit beginning in 1973 (record in the world)

* In 1995, competition from other airlines temporarily depressed Southwest's profitability

* Southwest management was so proud of its employees' culture that it periodically hosted "best practice" teams from all industries that wanted to discuss hiring, training, and employee-relations practices.

* In the 1990s other airlines around the world began to model their strategies around Southwest

Strategy:

* It did not employ the hub-and-spoke route system adopted by many other airlines.

* Hub-and-spoke systems were designed to feed large volumes of passengers into hubs where they could be redistributed to connecting flights

* Instead, they preferred a point-to-point system.

o This enabled Southwest to speed the turnaround of its aircraft not required to wait for connecting flights

* By mid-2001, Southwest's turnaround time was an average of 24 minutes (which was at least 30