Southwest Airlines

Case is intended to be a part of instruction material developed for teaching at a Marketing class in Business Schools. Case facts are taken from the Wikipedia article on the airline with some additional facts provided. Case facts are for discussion only and are not intended to be a demonstrator of correct or incorrect handling of management situation.

Southwest Airlines Co. (N S!" #$%&' operating as Southwest Airlines' is the largest low(cost carrier in the $nited States' and is head)uartered in *allas' +e,as. +he airline was established in -./0 adopting its current name in -.0-. 1t carries the most domestic passengers of any $S airline as of 2une 3' 45--.

6n March -/' -..3' Southwest became one of the first airlines to have a website. 6riginally called the 7Southwest 8irlines 9ome :ate7' passengers could view schedules' a route map' and company information at 1flyswa.com. Southwest.com is the number one airline website for online revenue' according to ;hoCusWright. Nielsen< Netratings also reports that Southwest.com is the largest airline site in terms of uni)ue visitors. 1n 455/' 05 percent of flight bookings and 0= percent of revenue was generated from bookings on southwest.com. 8s of 2une 4550' /. percent of Southwest passengers checked in for their flights online or at a kiosk. !ven before the launch of the website in -..3' Southwest encouraged customers to call the airline directly > rather than go through travel agents. ?igures from the time indicate that only 33@ of SouthwestAs tickets were booked through travel agents > as against an average of about .5@ for most other airlines. +ravel 8gents were connected to other airlines through ComputeriBed Ceservations Systems (CCS& such as 8madeus' 8pollo' :alileo and Sabre that charged about D4 per transaction. Southwest did not make its seat inventory available on the CCSs and +ravel 8gents had to contact the 8irline directly to make a booking. Southwest paid travel agents the standard -5@ commission. Operations SouthwestAs competitive strategy combines high level of employee and aircraft productivity with low unit costs by reducing aircraft turn(around time particularly at the gate > -3 minutes average v<s the industry average of 33 minutes. Southwest does not use the more traditional 7hub and spoke7 flight routing system of most other maEor airlines' preferring instead the 7;oint to ;oint7 system across its short haul network > with most flights being /3 minutes on average. 8n average of F5 percent of Southwest passengers are direct passengers' meaning only 45 percent of all passengers are connecting passengers. +his is significantly higher than most airlines' where passengers often connect in hub cities. 8s part of its effort to control costs' Southwest sometimes uses secondary airports in cities that have high costs at their primary airports. Secondary airports generally have lower costs (average of D 4.35 per passenger instead of the D/(DF at maEor airports& and may be more convenient to by virtue of being closer to the city center. ?or e,ample' Southwest flies to Chicago(Midway instead of Chicago(6G9are and the #ove ?ield in *allas instead of the bigger *?W (*allas ?ort(Worth& airport. Southwest saves an average of 45@ on flight time due to reduced ta,i time and less time spent in holding patterns' allowing Southwest better utiliBation of their gates with at least 45 departures per day.

With other airlines preferring the bigger airports' it made it difficult for passengers to transfer from Southwest to other airlines and vice versa. Southwest also chose not to offer connections or transfer baggage to other airlines.

Southwest usually entered a new sector with e,tremely aggressive faresH often 35@ below the competitionAs price point. ?ollowing southwestAs entry into a sector' the overall number of seats sold went up by I ( F times as some customers chose to fly instead of taking surface transport. Southwest offers free in(flight non(alcoholic beverages with alcoholic beverages available as well for a small price. Southwest has complimentary peanuts or pretBels on all flights' and most flights have free Nabisco snacks. Southwest is known for colorful boarding announcements and crews that burst out in song. +he singing is )uite popular among passengers. Southwest maintains e,cellent customer satisfaction ratingsH for many years' according to the *epartment of +ransportation Southwest ranked number one (lowest number of complaints& of all $.S. airlines for customer complaints. Southwest 8irlines has consistently received the fewest ratio of complaints per passengers boarded of all maEor $.S. carriers that have been reporting statistics to the *epartment of +ransportation (*6+& since September -.F0' which is when the *6+ began tracking Customer Satisfaction statistics and publishing its 8ir +ravel Consumer Ceport. Southwest does not have assigned seating and it does not use boarding cards. ;assengers are given a plastic tag with a letter (8' B or C& and a number' passengers line up in number order within each letter group. !ach letter group boards /5 passengers at a time handing their plastic tag back to the attendant at the gate.

Data on US Airline Industry 1995

Southwest 8merican $nited *elta North( west 8merica West (Ch.--& -'4.3 Conti( nental (Ch.--& 3'I5=

Revenue ( !n" Operatin# $%penses ( !n" Operatin# &ro'it ( !n" Operatin# !ar#in ((" )a*or Costs ( !n" )a*or as ( o' Revenue +uel ( !n" +uel as ( o' Revenue Cost per Availa*le Seat !ile (,ents" -u.*er o' $.ployees +leet Si/e &assen#ers (!n" +li#hts per Day

-'/F3

-='3F-

-4'F.5

--'30.

0'/.I

-'354

-='/3F

-='I4F

-4'I5-

F'40=

-'=/.

3'33.

-F=

(00

(3=F

(F44

(=5.

(0I

(-3/

-5.FI@

(5.30@

(I.-0@

(0.-5@

(=.FF@

(3.04@

(4.F.@

354

I'/.5

I'3/4

I'05/

4'0I/

=4I

-'=-5

4..F@

=I.=@

=I.5@

=0..@

==.4@

4=.0@

4=./@

4II

-'F/4

-'/0.

-'3F-

-'4=0

-F/

F=5

-I..@

-=./@

-4.3@

-4.0@

-I..@

-=./@

-I..@

0.5=

F..=

../5

..II

..5.

F..5

F.=.

--'I55

-54'I55

F='.55

0I'/55

I0'=55

-5'455

=F'=55

-35

/04

3=/

333

=0=

F/

=-.

4F -355

F/ =F55

/0 =555

F= =555

I= 4I55

-3 /55

=F 4555