Southwest Airlines Inc. Case Study

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Southwest Airlines Inc.

Rollin King, a San Antonio, Texas entrepreneur, and Herb Kelleher, an attorney, founded Southwest Airlines in 167. Their goal was to copy the low-cost / low fare business model that proved successful for Pacific Southwest Airlines based in California. Herb Keller filed papers to incorporate the airline and an application with the Texas Aeronautics Commission (TAC) to begin service between Dallas, Houston and San Antonio. The TAC unanimously approved the application but Southwest's competitors obtained a temporary injunction preventing Southwest from flying. After many legal battles with its competitors Southwest was given the green light to start flying. Southwest began service on June 18, 171; a day that began an unprecedented history for an airline that survived tough legal battles and through its leadership implemented innovative cost reduction strategies and is currently enjoying industry leading profits and overall success.

Legal Battles

Before Southwest flew its inaugural flight it was embroiled in legal battles with it competitors Braniff, Continental and Trans Texas. At trial in 168, the competitors argued that Southwest was entering saturated markets that had no more traffic to support another airline. Herb Kelleher represented Southwest and countered with witnesses that claimed the markets were growing and passenger traffic would increase with Southwest's planned low-fares. The district court ruled that the cities Southwest proposed to serve could not support another airline.

Herb Kelleher could not sit and watch the competition harass Southwest out of the airline industry; he continued the fight with appeals to higher courts. After a state court upheld the lower court's decision, the Texas Supreme Court stepped in and unanimously overruled both lower courts. The legal battles continued because Braniff, Continental and Trans Texas appealed to the U.S. Supreme Court. The highest court in the nation handed a victory to Southwest by refusing to hear the appeal. Braniff and Texas International refused to stop fighting and after few other legal battles the Texas Supreme Court finally cleared Southwest for takeoff.

Leadership

Fighting through the tough legal battles, Herb Kelleher sharpened his sword and provided the leadership necessary to move Southwest forward. Southwest asked Kelleher to assume the duties of Chairman of the Board in 178 and later became the President and CEO in 181. Leadership is much more than managing business operations it involves selling passion and vision that impact employees and customers, Kelleher did it extremely well. His style was not to manage too much from his office because he preferred to be out in the field in order to gauge the satisfaction of employees and costumers. Employees are the most important part of business in Kelleher eyes and he made it a major goal for all executives and supervisors to be open, honest, accessible and encouraging. Herb Kelleher contended that customer satisfaction is dependent on employee satisfaction; Southwest never in its history had to lay off any employee.

Cost Reduction Strategies

Due to its low-fare business model Southwest must maintain low operating expenses in order to earn a profit. Southwest's cost reduction strategies have proved successful because they range from flight schedules efficiencies to reduced commissions and streamlined maintenance. Its own employees have initiated many of the strategies because they realize the core values of Southwest and can easily express concerns and new ideas to supervisors and executives. According to its annual reports, Southwest has the lowest operating expense in the airline industry at $7.7 (000) per average seat mile.

A few of Southwest's cost reduction strategies

• Point-to-point flight scheduling system steers clear of congested airports and is more cost-efficient than typical hub-spoke systems used by other airlines.

• Fleet of only Boeing 77s makes it easier to maintain the airplanes and reduces spare parts inventories

• Online ticket purchasing system prompted the reduction of travel agent commissions to 5 percent

• Meals are not served on flights passengers are offered beverages, peanuts and raisins

Success

Cost reduction strategies have helped further Southwest's business model but there are other factors that have contributed to its success. It begins with the survivor mentality instituted from its beginning with the frivolous lawsuits brought by its now defunct competitors. The legal battles solidified Southwest's beliefs in the low-cost / low fare business model. They created a new airline customer that wants no frills, low fares and excellent customers service. Herb Kelleher lead a company that values it employees, which in turn values its customers. Southwest's major success is quantified by its numerous awards in employee and customer satisfaction and 0 years straight of profitability and increasing market share.

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