Southwest Airlines Case Summary

Southwest Airlines Case Summary

Southwest Airlines was originally named Air Southwest. It was started on March 15, 1967, by Rollin King and Herb Kelleher. Southwest Airlines is an American low fare airline based in Dallas, Texas. It is also the largest airline in the United States by number of passengers carried domestically in a year and the third largest airline in the world by number of passengers carried. Southwest is also one the most profitable airlines in the world posting a profit for 34 consecutive years.

September 11th was the worst day for airline companies around the world. There was close to a 20% drop off in airline traffic in the fourth quarter of 2001. The U.S. commercial airline industry was in turmoil and companies began taking out loans to cover a $3 to $8 million daily cash drain. Almost one fifth of the airline industries employees were laid off. U.S. carries lost a combined $7.8 billion in 2001, and 3.3 million dollars of that money came in the fourth quarter. Southwest Airlines did not lay off any employees. They did not cut any flights. Southwest's management philosophy for the last 20 years has been to manage the company in good times so that the company and its employees would e okay in bad times. When the towers fell, Southwest had the lowest operating cost of any U.S. airline. It also had $1 billion in cash and had the strongest balance sheet and credit rating of any U.S. airline. They were able to quickly borrow $1.1 billion to pay bills and employees.

Southwest had to struggle to gain a market foothold and to get into the airline industry. Southwest Airlines took its first flight in June of 1971. They flew what was the called the golden triangle, which were round trip flights between Dallas, San Antonio, and Houston. On some days the number of passengers for all of their 18 flights would be less than 250 people. Resource and funds were stretched so tight CEO Lamar Muse had to buy fuel for several months on his personal credit card. In order to get more passengers to fly Southwest management came up with different themes to try and get passenger traffic, such having hostesses wear hot pants and knee high boots and the 10 minute turnaround. They also had many legal struggles. Southwest infuriated local officials because they refused to leave Dallas Love Field. The courts ruled in Southwest's favor and they did not change locations. They also received more problems because other airlines complained that if Southwest began serving smaller cities in Texas it would result in costly overcapacity. Once again Southwest prevailed.

The Herb Kelleher era was the real beginning of Southwest Airlines. He took over in 1981, after Lamar Muse and Howard Putnam, and Southwest Airlines had 27 planes, $270 million in revenue, 2100 employees and flights to 14 cities. Over the next 20 years the airlines grew and going into 2003 Southwest was the 4th largest U.S.