The case starts by setting the context of Southwest Airlines being consistently profitable despite many economic

crises in history – giving credit to the airline’s leadership philosophy based around managing the bad times to
secure the good times with a people-oriented culture at its core. However, SouthWest was facing some recent
challenges as threat of industry competitors were rumored to merge, potentially challenging SouthWest’s low cost
offerings
After de-regulation post 1978 – invited a lot of competition in the airlines industry. During the first decade, 150
airlines were sent into bankcruptcy. A second tier of airlines began to offer low cost options saving consumers
billions of dollars.
Southwest Operational strategy and performance
Unlike the industry which assumed Hub and Spoke for connecting flights to be operationally feasible for lower
capacity destinations, Southwest operated on shorter high frequency Point to Point flight model to save costs by
reducing planes transit/turnaround time more than thrice the industry average. Fast service was aided with no-
frills approach made Southwest avoid cost by time savings from zero seat reservations, lower compensatory costs
(like hotel or call charges) to passengers for delays and, preference to costless online booking over agent’s
commission. In return, Southwest provided new segments like business class, extra boarding facility, two-bags
policy, and customized customer experience along with Frequent Flyers program which was based on dollars
spent rather than miles flown.
Another attributing factor was CEO and later Chairman of Southwest, Mr Kelleher Kelleher’s leadership style. He
was unconventional in his field, managing employees with higher EQ. Many analysts credited Southwest’s
success to Kelleher’s management style which created new standards and exuberated organizational culture with
Southwest Spirit of enthusiasm, where customer service was beyond valued highly by every employee. Advanced
employee training regularly occurred at the University of People at Love Field in Dallas. Employee initiative was
also supported by management at all levels. Southeast placed great emphasis on maintaining cooperative labor
relations. In 1974, Southeast was the first airline to introduce employee profit sharing.
As a result of such unique strategies, Southwest earned profit for 40 consecutive years despite prevailing industry
losses. In comparison to industry, Southwest had highest: operating profits, passenger yields, passengers per
employee and flights frequency per plane resulting in lowest: employees per aircraft ratio, cost per seat, load
factor and debt to equity ratio. Several new entrants and big players tried to imitate Southwest Airline’s strategy
to match pricing but none of them could efficiently translate it to profitability and were all eventually ousted out.
Expansions and Way forward
In 1993, Southwest acquired Morris Air that operated in different coverage regions which later in 1999 was
competed by a startup carrier JetBlue offering basic facilities on lower prices with geographically diversified
flight. Southwest strategically controlled expansion through selected airports/cities by restricting mainly to
domestic flights only and considering threats, like congestion and extreme weather conditions before entering
populated area of northeast. In 2010, Southwest announced to buy AirTran Airways for $1.4 Billion, opening
gates to 30 new markets. However, it might be challenging for Southwest to adjust its culture after the acquisition
because AirTran had a lower cost and airplane structure comparatively.
Drastic changes are expected in airline industry. Although Southwest had high profitability and employee
productivity, its operating costs are rising. Moreover, small players like JetBlue and Allegiant along with newly
merged legacy careers are expected to become more efficient offering stiff competition.