Southwest

Background Summary

Southwest Airlines based in Dallas was founded in 1967 by Rollin King and Herb Kelleher. It is one of the major domestic airliners which provides carrier and transportation service. This company has 35,499 employees and it runs over 500 Boeing 737 aircraft in 67 cities in the US. Southwest’s principal values are:

• Providing low-fare and short haul service.

• Offering the highest quality of customer service.

• Putting a lot of importance on the fair treatment to its customers.

• Building friendly relationship between its customers and employees.

Southwest Airlines has achieved a great position in the airline industry by adopting five important strategies.

• First, using the minor league airports which have helped the company to reduce traffic delays and increase passenger convenience.

• Second, flying one kind of aircraft has helped it to achieve lower training cost.

• Third, reducing turn-around time by using point-to-point strategy, has avoided the use of complicated reservation process system.

• Forth, not offering assigned seating and preferential treatment on frequent fliers, has led the company to have better ticket price.

• Lastly, emphasis on building good relationship between passengers and attendants has been a well valuable factor.

Southwest uses a different kind of reward programs. For instance, the reward for frequent fliers includes free flights according to the number of flights; which means if you fly eight round trips or sixteen one way trips, you will get one free round trip ticket. In addition the company offers free drink coupons, toll-free reservations phone numbers, and credit with a preferred partner, which means if you take fifty round trips in a year, you can designate one person to travel with you for one year.

Southwest Airlines main competitors are: Continental Airlines, USAir ways, Delta, United airlines, and American Airlines. As you can see in the table below, the current days have been really challenging for the industry. However Southwest has been able to increase its operating revenues.

Operating revenues

Company 2 Q 2001 2Q 2000 Dif

Southwest 1,554 1,461 93

USAirways 2,493 2,433 60

Delta 3,776 4,469 (693)

United Airlines 4,658 5,109 (451)

ref. Rapid rewards at Southwest Airlines

Southwest decided to go public in 1977 with the ticker symbol LUV. The company gained $11,023 million in 2008, and today its stock price reaches $9.83. Its strategy as an egalitarian company has let the company achieve success. However some frequent passengers have raised some questions about the policy of avoiding preferential treatment for its loyal customers.

Major problem

The Southwest Airlines major problem is the threat to lose some of its frequent customers. The case illustrates two opposite kinds of frequent passengers:

• The first one is William Mark, who loves almost everything that Southwest provides such as: the opportunity to come earlier and have a great seat, the absence of meals, and the ticket prices.

• The other one is Liz Bast, who loves the policy of using minor league airports, but has complaints related to the ways of seat assignment, the rules about upgrading restricted tickets, and she wishes to have preferential treatment, especially because she flies more than 100.000 miles per year.

The customers like Liz Bast might be looking for another airliner company. Therefore, Southwest needs to figure out one strategy which helps to avoid this problem.

Contributing Factors:

The threat to lose some of Southwest’s frequent customers is caused by five factors:

• Recheck-in baggage: Passengers with connected flight who are going to switch to another airline have to pick up their checked baggage and recheck-in with the next airline.

• No assigned seats for passengers: Southwest used first-come first-served system in seats assignment, which means people who arrived first will get the better

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