Southwest Airlines 2008

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Case #20 – Southwest Airlines
Company History
 1966 Rollin King approached Herb Kelleher’s law office with plan to start low-cost/lowfare airline
 Ran into legal problems, rival airlines in Texas did everything they could to block new airline  Herb Kelleher was determined to start up airline
 1971 – Lamar Muse Southwest CEO, background in industry to get it up and starting
 Raised $7 million in capital and private investors to purchase planes and equipment
 Flights started between Dallas, San Antonio, and Houston known as the “Golden
Triangle”
 First ever annual profit in 1973
 2010 – market share leader in domestic air travel in US, consistently profitable even during down turning economy, profit every year since 1973
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Southwest also initiated special fare promotions when advance reservations were weak for particular weeks or times of the day to fill up planes and avoid losing revenues and covering costs. This strategy combined with the “Bags
Fly Free” resulted in Southwest having record load factoring of filling up all seats on the aircrafts. By filling up available space and the volume of passenger traffic helped to compensate for the low fares they were able to offer to customers. Southwest also concentrated on their route system on flights between pairs of cities 150 to 700 miles apart that handled enough passenger traffic to offer a sizable number of daily flights. They also implemented a quick turnover of flights with boarding times ranging from 15-30 minutes to create more daily flights. Other ways of execution of their low-cost/no frills strategy include:
 The company operates on only one type of aircraft (Boeing 737) to minimize the size of spare parts inventories, simplify training of maintenance and repair, and improve proficiency and speed of routines.
 Southwest was the first major airline to introduce ticketless travel and allowed customers to make reservations and buy tickets online.
 They used medium sized, less congested airports instead of major cities which allowed them to produce better than average on time performance and reduce fuel costs with planes sitting in line on crowded runways.
 Southwest’s point to point
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