Southwest Airlines

While flying home to Texas last summer with Southwest Airlines, I had the most fun and unique experience with an airline that I could ever remember.It all started out quite oddly enough in the lobby just before takeoff. As I was checking in at the ticket counter, the representative asked me if I wanted to play a game that could get me free round trip tickets. “Sure, who wouldn’t,” I exclaimed. As she gave me my boarding pass she said, “Great, how many holes do you have in your socks?” Initially caught off guard, I responded, “Excuse me!” “The free tickets are being given to the customer who has the most holes in their socks,” she explained with a perky smile. It was just my luck that I was wearing sandals. I told her, “Too bad your not checking underwear, because I’m sure I could be in the running for some free tickets with that sort of game.”
The remainder of the flight was filled with jokes and gags yet quality service from the pilot to the flight attendants. I can remember our flight attendant, dressed in a T-shirt, shorts and tennis shoes along with the rest of the staff, enhanced the safety announcements with the remark: “There may be fifty ways to leave your lover, but there are only six ways to leave this aircraft.”
Having fun is obviously a big part of Southwest Airlines formula to success. It all starts from the top with their childish yet brilliant boss Herb Kelleher. Kelleher, the company’s CEO, is the “nut” behind these shenanigans. This chain-smoking, Wild Turkey-drinking Texas transplant from New Jersey has:
Dressed for employee celebrations as Roy Orbison, Elvis, a medieval knight and a teapot;
Passed out the peanuts himself on board his orange and brown 737s
In front of cheering employees, arm-wrestled another CEO for the right to use the slogan “Plane Smart.” (He got whipped, but he used the slogan anyway.)
This man, once called “The High Priest of Ha Ha” by Fortune
Magazine firmly believes: “If you feel real good about coming to work,
if you feel real good about what you’re doing, if you feel you are doing
something for a meaningful cause and you’re having fun while you’re
doing it, then you look forward to coming to work. You don’t succumb to
stress as easily and you cooperate with other people more quickly and
more easily. If you have a sense of humor . . . it tends to not allow
you to make mountains out of molehills.” 1
Kelleher, known as Herb to the troops and his partners, reinvented air travel twenty-five years ago with its low fares and zany irreverent style.

This paper will give a historical overview of the company, discuss the ingredients to the company success, offer some financial strengths and present a final conclusion.

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Twenty-seven years ago, Rollin King, a San Antonio entrepreneur who owned a small commuter air service, and Kelleher, who was a lawyer at the time, got together and decided to start a different kind of airline. They began with one simple notion. If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make certain they have a good time doing it, people will fly your airline. And you know what? They were right.

Within those 27 years, Southwest Airlines became the fifth largest major airline in America. Today, they have flown over 50 million passengers a year to 54 cities all over the southwest and beyond. They do it over 2,300 times a day with over 267 of the newest jets in the nation and fly only one type aircraft; the B-737. The average age of their fleet is only 8.4 years and they own over sixty percent of them.

In May 1988, they were the first airline to win the coveted U.S. Department of Transportation Triple Crown for a month – Best On-time Record, Best Baggage Handling, and Fewest Customer Complaints. Since then, they’ve won it thirty-one times, as well as five annual Triple Crowns for 1992, 1993, 1994, 1995, and 1996.

They have been an airline whose has led to the advancement of the commercial airline industry. They were the first airline with a frequent flyer program to give credit for the number of trips taken and not the number of miles flown. They have pioneered senior discounts, Fun Fares, Fun Packs, a same-day air freight delivery service, ticketless travel, and many other unique programs. 2
Here is a brief year to year synopsis about this little upstart three-jet airline and how it got off the ground to become one of America’s largest and best-loved commercial airlines in history:
1971With President Lamar Muse ( retired and seasoned industry leader) at the helm, Southwest Airlines takes off on its maiden voyage and begins service between Dallas, Houston, and San Antonio. America’s most unique airline is born.

1972All Houston service is transferred to Houston’s Hobby Airport from Houston Intercontinental. Said Kelleher, “Why should our customers have to drive 45 minutes to take a 40-minute flight?”
1973Southwest files with the Texas Aeronautics Commission to extend service to the Rio Grande Valley. RUSH Cargo service, which provides same-day airport cargo delivery, is introduced and Southwest has its first profitable year.

1974Southwest carries its one-millionth passenger and spends $400,000 to renovate their terminal at Houston’s Hobby Airport by adding two new boarding gates and departure lounges.

1975Permission was finally granted for Southwest to fly to the Rio Grande Valley via the Harlingen Airport with four roundtrips each business day.

1976Southwest gets clearance to begin service to Austin, Corpus Christi, El Paso, Lubbock, and Midland/Odessa. Within five short years, Southwest places its sixth Boeing 737 into service while flying over one and a half million satisfied customers to their destinations.

1977Southwest carries its five millionth passenger. Southwest stock is
listed on the New York Stock Exchange as “LUV.”
1978The 1978 Airline Regulation Act gives Southwest the opportunity to really take off with new service to St. Louis, Kansas City, and Detroit from Chicago’s convenient Midway Airport. Lamar Muse steps down as President and Kelleher fills in as interim President, CEO, and Chairman of the Board. Later in the year, Howard Putnam is unanimously elected President and Chief Executive Officer. Kelleher stays on as permanent Chairman of the Board.

1979Begin service to New Orleans from Dallas – the first city outside of Texas to be served by Southwest.

1980Southwest added its 22nd Boeing 737 to the fleet and christened it the “Rollin W. King” in honor of the co-founder of the airline. It was the first 737 to be completely owned by Southwest Airlines.

1981Southwest celebrates a decade of “Love Southwest Style.” With fun, games, and more savings for everyone, Southwest launches its next decade of outstanding service.

1982Kelleher comes aboard as permanent President, CEO, and Chairman of the Board for Southwest. New service to San Francisco, Los Angeles, San Diego, Las Vegas, and Phoenix.

1983Major schedule increases are adopted, three additional Boeing 737-
200s are purchased, and Southwest flies over 9,500,000 satisfied Customers.

1984Fourth consecutive year Southwest is ranked number one in customer satisfaction. Unveils the first 300 series aircraft in its Boeing 737 fleet christened the “Spirit of Kitty Hawk.”
1985Southwest names the Ronald McDonald House as its primary charity. Launched the “Just Say When” campaign, which establishes Southwest as the most convenient point-to-point carrier in the nation.

1986Southwest celebrates 15 years of low fares, good times, and high spirits! Southwest fliers have even more fun with the introduction of Fun Fares. Over 13 million passengers.

1987Southwest celebrates the sixth year in a row as a recipient of the Best Consumer Satisfaction record of any continental U.S. carrier. Weekend Fun Packs, which include roundtrip airfare and hotel, are introduced, and 14-day advance purchase Fun Fares are reduced by as much as 25%.

1988Southwest and Sea World of Texas join fins to promote Texas as a major tourist attraction. Through the “New Friends” campaign, Southwest becomes Sea World of Texas’ official airline and creates Shamu One, a Boeing 737 painted like Shamu the killer whale. Later in the year, Southwest becomes the official airline of Sea World of California. Southwest wins the first Triple Crown: Best On-Time Record, Best Baggage Handling, and Fewest Customer Complaints.

1989A little more than a year and a half later, Southwest wins its second
Triple Crown. Shamu Two is born. Service begins from Oakland’s International Airport.

1990Announces the billion-dollar revenue mark and becomes a “Major” airline. Shamu Three comes to the surface to fly its colors. Lone Star One takes to the sky as Southwest Airlines’ 20th Anniversary flagship Boeing 737.

1992Wins the first annual Triple Crown in 1992 – a feat no other airline has been able to match in a single month!
1993Expand to the east coast and begins service to Baltimore/Washington International Airport.Captures the second annual Triple Crown in 1993.

1994Introduces Ticketless Travel in four cities. Morris Air is merged with Southwest. Arizona One joins the fleet. Seven new cities open, including Seattle, Spokane, Portland, and Boise in the Pacific Northwest.Wins the third consecutive Triple Crown.

1995 Ticketless Travel is available systemwide in January. California One debuts in Sacramento. Adds service to Omaha and wins the fourth consecutive Triple Crown in 1995.

1996Florida service is added – Tampa Bay and Ft. Lauderdale in January and Orlando in April. Southwest celebrates 25 years of service.Ticketless Travel Online debuts on the Southwest Airlines Home Gate webpage. In October, Southwest inaugurates service from Providence, Rhode Island. Southwest wins the fifth annual Triple Crown for 1996.

1997Starts out the year with service to their 50th city – Jacksonville, Florida.Jackson, Mississippi becomes the 51st city added in August.In December, Southwest accepts the delivery of its first Boeing 737-700. Southwest is the launch customer for Boeing of the next generation Boeing 737-700.

1998Begins new service to Manchester, New Hampshire on June 7.

1999Begins new service to Islip, New York on March 14. 3
As you can see, this airline has been very busy the past 27 years. Southwest is a rare bird in American business, a company that has cultivated an exceptional working atmosphere with amazing success in its industry. Now let’s take a look at how Southwest succeeds in one of the world’s most demanding airline industries.

“There is a growing concern that companies cannot live by numbers alone.” So said Forbes Magazine to introduce the results of its 1995 Corporate Reputation Survey. “The one thing that the top ranking companies in the survey have in common is culture. A company’s culture, like a person’s character, drives reputation. It should come as no surprise that a company whose culture honors customers, employees and shareholders alike have excellent reputations.” 4
Southwest’s culture is the glue that holds the airline together. It encompasses beliefs, expectations, norms, rituals, communication patterns, symbols, heroes and reward structure. Culture is not about magic formulas and secret plans but rather a combination of trust and loyalty. Kelleher believes that culture is one of the most precious commodities a company owns so everyone from the CEO to the baggage handler must work harder at it than anything else.

Kelleher defined Southwest formula to success as to:
Blaze new trails. Don’t rest on the laurels of others.

Ask yourself how can you do it before you ask others how it’s been done.

Become a “risk doctor:” help others recover from mistakes by accepting, encouraging and laughing.

Stand behind your commitment and those of your people.

Own mistakes, share mistakes, learn from mistakes and move on.

Southwest’s commitment to culture has blended three important ingredients to make their airline a thriving force: employees, customers and leadership.
First of all, the employees at Southwest have an uncompromising dedication to a cause or movement that they deeply believe in. Secondly, Southwest has set the standard for low fares for the customers. They have made it possible for people all over the country to travel more conveniently and affordably. Finally, there is sound leadership to ensure that the employee/customer relations merge to instill faith and allegiance. 6
Southwest is obviously a collaborate effort. Kelleher has surrounded himself with qualified and capable people who can run the airline with or without him. Of course, they can survive without him however I’m sure it would be quite difficult for them to live without him. He has set the benchmark for all industry leaders to follow.
Southwest is the team that everyone in the industry would want to play for. They have been a genuine American success story. Let’s take a look at a few of their successful economical accomplishments.

First is their profitability. In an industry that is still reeling from the $12.8 billion loss it posted between 1990 and 1994, Southwest was the only airline to be profitable each year during that period. During this time the airline industry lost more money than it made in the previous sixty years. Southwest is the only U.S. airline to earn a profit every year since 1973.

Secondly, Southwest has have maintained a steady growth rate. Since deregulation in 1978, 120 airlines have gone bankrupt. They company has experienced 133% traffic growth over the past five years, ranging from 20 to 30 percent annually.

Next is their outstanding stock performance. Investment guru Peter Lynch lauds Southwest as “The only U.S. airline to have made money every year since 1973.” Up 300 percent since 1990, Southwest’s stock has performed formidably. While airlines typically trade at typically at approximately ten times their earnings, Southwest has generally traded at twenty times earnings.
Finally, Southwest continues to lead the industry with the lowest fares, market dominance, most productive workforce, low employee turnover, highest customer service rating and the youngest and safest fleet in the world. 7
Kelleher calls his company “NUTS!” However nuts they may be, they are living out one of the greatest success stories in the history of commercial aviation and they’re having fun while doing it.

Since 1971, this eccentric and outlandish company has established a consistent pattern of deviating from convention. When other airlines were creating big hubs, Southwest was flying point to point. Instead of serving expensive meals, flight attendants pass out nuts. Instead of wearing stuffy uniforms, they sport polo shirts and shorts.
For these departures from convention, and many others, the world has become fascinated with these crazy people whose unrestrained enthusiasm comes from the desire to make their lives and their company extraordinary. Somehow, while the competition was trying to figure out who these “goofs” were, they never noticed that these “goofs” had already passed them up!
Instructor: Mr. Verret
Course: MAS 602
Date: May 10, 1999
Baiada, R. Michael. “Southwest Airlines: Below the Surface.” Airline
Chakravarty, Subrata. “A Model of Superb Management: Hit’em Hardest
with the Mostest.” Forbes, September 1991: pp. 48-51.

Freiberg, Kevin. Nuts! Southwest Airlines Crazy Recipe for Business and
Personal Success; 1st ed.; Bard Press: Texas, 1996.

Jacob, Rahul. “Corporate Reputations.” Fortune, March 1995 pp. 72-76.

Jarboe, Jan. “A Boy and His Airline.” Texas Monthly, April 1989: pp. 98-
Jones, Del. “Low-Cost Carrier Still Challenging Industry.” USA Today,
1. Chakravarty, Subrata. “A Model of Superb Management: Hit’em
Hardest with the Mostest.” Forbes, September 1991: pp. 48-
2. Jarboe, Jan. “A Boy and His Airline.” Texas Monthly, April 1989: pp.
3.Baiada, R. Michael. “Southwest Airlines: Below the Surface.” Airline
5. Freiberg, Kevin. Nuts! Southwest Airlines Crazy Recipe for Business
and Personal Success; 1st ed.; Bard Press: Texas, 1996.

6.Jacob, Rahul. “Corporate Reputations.” Fortune, March 1995 pp. 72-
7.Jones, Del. “Low-Cost Carrier Still Challenging Industry.” USA Today,
Abstract: The “Southwest” Experience
Purpose: This paper will give a historical overview of Southwest Airlines, discuss the ingredients to the company success, offer some financial strengths and present a final conclusion.

Introduction: First flight and my strange yet refreshing experience aboard Southwest Airlines.

Section I: A brief year to year synopsis of the airline.
Section II: A club and its culture.
Section III: A momentary look at a few of their economical accomplishments.
Bibliography:
Bibliography
Baiada, R. Michael. “Southwest Airlines: Below the Surface.” Airline
Pilot, July 1994: pp. 19-22.


Chakravarty, Subrata. “A Model of Superb Management: Hit’em Hardest
with the Mostest.” Forbes, September 1991: pp. 48-51.


Freiberg, Kevin. Nuts! Southwest Airlines Crazy Recipe for Business and
Personal Success; 1st ed.; Bard Press: Texas, 1996.


Jacob, Rahul. “Corporate Reputations.” Fortune, March 1995 pp. 72-76.


Jarboe, Jan. “A Boy and His Airline.” Texas Monthly, April 1989: pp. 98-
103.
Jones, Del. “Low-Cost Carrier Still Challenging Industry.” USA Today,
July 10, 1995.