Southwest Airlines Corporation

In 2005, Southwest Airlines Corporation was the most admired airline in the world and
among all industries, it listed as number five among Americans Top Ten Most admired
corporation. Southwest, which was incorporated in Texas, commenced customer service on
June 18, 1971, with three Boeing 737 aircraft serving three Texas cities: Dallas, Houston, and
San Antonio. The company grew to become the fourth largest U.S. airline (in terms of
domestic customers carried). In 2002, it boasted a fleet of 366 Boeing 737 jets. Southwest
was the United States only major short-haul, low-fare, high-frequency, point-to-point carrier.

The Southwests strategy

Low operating costs which makes a low fare

The company keep prices as low as possible in order to stimulate demands, and look

to redistribute expenses through other areas. Southwest consistently sought out ways to
improve its effeciencies and pass on the cost of saving to its passengers. Also Soutwest had
reduces the headcount per aircraft to 74 from 85. It hedge about 85% of its fuel and oil needs
and as a result saved about $455 million. The Boeing 737, which is more fuel efficient than
the larger airplanes. Keeping just one type of plane also helps reduce training costs of pilots
and mechanics, and also requires lower inventory levels of spare parts.
One of Southwests strong contributions to profit emerges from accepting online
reservations and processing e-ticket for reduced prices by ticket-less travel. Many major
carriers are challenging Southwests online business through building alliances with e-Travel
and using travel websites in order to create larger amounts of sales from smaller business or
leisure travelers. In 2005, 60% of Southwests passenger revenue was generated by online
booking.

Southwest used point to point approch

Southwest did not employ the hub-and-spoke approach used by other major airlines,

instead, its approach was shorthaul (average flight time was 55 minutes) and point-to-point.
Southwest offers about 2,700 daily flights to more than 60 airport in 31 states. Short flights,
typically lasting an hour or less, and use of each plane for an average of 11 hours per day,
three hours above the industry average, enables Southwest to spread its fixed costs over more
seats. Their focus on point-to-point systems results in more direct routes, reducing
connections, delays and overall trip time.They had no assigned seats and used less congested

airports, usually lands at small airports to steer clear of the congestion at competitors' larger
hubs.

Southwest Airlines third strategy is their devotion to their employees and customers.
Southwest has created a culture at Southwest where employees feel like part of an

extended family. The CEO Herb Kellerher charisma and sense of creativity has helped to
generate intense employee loyalty. He was deeply committed to philosophy of putting
employees first. If theyre happy, satisfied, dedicated, and energetic, theyll take
real good care of the customers. When the customers are happy, they come
back. And that makes the shareholders happy. Southwest initiated the first profit

sharing plan in US airline industry in1974 and offered profit sharing to its employee every
year since then. Through this plan, employee owned about 10% of company stock. For fiscal
2003, Southwest offered its employee $126 million in profit sharing.
The basis on which Southwest builds its competitive advantage:
1. The operation cost which make low fare.
Southwest Airlines has the lowest fares among its competition Its lowest fares partly
came from low operational costs.
2. Employee satiesfied
If theyre happy, satisfied, dedicated, and energetic, theyll take real good
care of the customers. When the customers are happy, they come back.
And that makes the shareholders happy.

Southwests control systems help the company to execute strategies :

Southwest is a low-cost airline that focuses on fast, no-frills service. It has never
served meals, does not have advanced seat reservations, and flies only Boeing
airplanes. These decisions have helped Southwest be flexible in the face of the
decreases in airplane passengers caused terrorist attacks and the world economic
crisis. The company did not have to make the drastic changes seen in its competitors
services because it was already operating as a low-cost carrier. While other airlines
cut back costs by reducing their services and firing large portions of their employees,
Southwest was able to get by with nothing more than pay-cuts, no employee was fired
because of economic issues. Although a company-wide pay-cut is nothing to sneeze
at, Southwest employees agreed they would rather have their jobs for less pay than try

to find work elsewhere. Through this loyalty, Southwest was able to recover much

faster than its competitors and maintain its strong customer base.
Southwests management strategy encompasses their aggressive marketing approach.
Through marketing strategies, Southwest Airlines tries to distinguish itself from the
rest of the airline industry. The marketing focuses on communicating to the customer
that they offer real value while making flying fun. They promote themselves as
offering safe, reliable, low-cost fare with outstanding service. Rather than competing
with other carriers for existing travelers, Southwest targets a different set of
passengers.

References :