Southwest Airlines:

Culture, Values, and

Operating Practices
 Company
Background
Southwest Airlines, Inc. (NYSE: LUV)
major domestic airline that
provides :…
primarily short haul
high-frequency
point-to-point
low-fare service

The third-largest airline in Founded 1971

the world by number of
passengers carried and the Fleet size 472
largest in the United States Destination 63
by number of passengers
carried domestically. Headquarter Dallas, Texas
s
 Company
Background
 Company
Background
Core Values
2 core values- LUV and FUN.
LUV- compassion, caring, loving
attitude.
FUN- company sponsored parties
& celebrations.
Culture committee to promote
“ positively outrageous service”.
Nurturing SW culture:
Co hearts mentoring program.
South West spirit.
“LUV lines” and “as the plane
 Company
Background
History
1967 Company is incorporated as Air Southwest Co.
1971 Airline launches first route, connecting Dallas, Houston, and San
Antonio
1973 SWA posts first profit and begins RUSH cargo service
1975 Southwest goes public on the American Stock Exchange
1976 Company is renamed Southwest Airlines Co.
1977 Shares migrate to the New York Stock Exchange
1978 Herb Kelleher becomes Southwest's outspoken new chairman
1981 Kelleher is named company president and CEO

1982 SWA begins flights to West Coast

1990 Revenues exceed $1 billion, making SWA a major airline

1994 Morris Air and Arizona One are acquired

 Herb Kelleher
& leadership
Herb Kelleher team

Became Southwest’s CEO in 1981

Listen, observe and offer
encouragement
People referred to him as “Clown
prince”
Combative and flamboyant
Fiscal conservatism
Optimistic and confident
Socialistic view
Growth mindset
 Herb Kelleher
& Leadership
Herb Kelleher
team
Chairman of Board of Directors & Former Executive
Head of Executive Committee Vice President of
Former General Customers,
Counsel and Keeper of
Vice President Corporate
Culture
Chief Labor High profile
James F. Colleen
Negotiator amongst the
Parker Barrett
employees
(1986) (1984)
Former member Network of
of Executive contact across
Planning Chief Executing Chief Operating company
Committee Officer Officer
Fortune-ranked
20 in the list of Non financial
Rich Experience
most powerful motivation
Similar
women in
personality to
American
Kelleher
Business
 Southwest Airlines
Strategy

♥ The beginning Strategy

Triangular route
(Dallas, Houston, and San
Antonio)
 Southwest Airlines
Innovati Strategy
on
Low Cost Innovations
Terminal Innovations
Point-to-Point strategy
Airport Location Innovations
Travel Booking Innovations
Single Aircraft Innovation
Customer service Innovations
Leadership at Southwest Airlines
Employee Ownership Culture
Southwest Employee’s Unions
Southwest Airlines
Strategy
 Southwest Airlines
Strategy
Porter’s Five Forces
Threat of New Entrants :
Medium
♥ Inter competitors
♥ Large Capital Requirement
– Continental Lite, United
Shuttle, Delta Express,
US Airways MetroJet
Internal Rivalry: High
Buyer Power: - Price is primary Supplier Power:
Medium differentiator Medium
♥ Destination - Exit Barriers are high ♥ Ticketing System
- Difficult to dispose of Company
Dependent ♥ Boeing 737
planes ♥
♥ Price Sensitive Fuel Company
- Loss making companies ♥ Snacks Company
♥ College Students take longer to close ♥ Beverage Company
down
Threat of Substitutes:
Low
♥ Train
♥ Bus
♥ Webcam
Advertisement Southwest Airlines
Strategy
strategy
“Just Plane Smart”
“The Somebody Else Up There Who Loves
You”
“THE Low Fare Airline”
“Symbol of Freedom”
“Wanna get away?”
“[ding] You are now free to move about
the country”
 Southwest Airlines
Advertiseme Strategy
nt
strategy
Some southwest planes feature
special themes, rather than the
normal livery
Shamu One/Two/Three
California One
Arizona One
Lone Star One
Triple Crown One
Sliver One
 Financial
Financial analysis
Year 1998 1999 2000 2001 2002
Operating ratio 0.83 0.83 0.82 0.88 0.92
Working capital -$276498 -$329461 -$466867 281034 798132
Current ratio 0.674 0.657 0.6404 1.125 1.55
Long-term obligations $623309 $871717 $760992 $1327158 $1552781
Stockholders’ equity $2397918 $2835788 $3451320 $4014053 $4421617
Passenger revenue per 12.76 cents 12.51 cents 12.95 cents 12.09 cents 11.77 cents
mile
Operating revenue per 8.76 cents 8.96 cents 9.43 cents 8.51 cents 8.02 cents
seat mile
Operating expenses per 7.32 cents 7.48 cents 7.73 cents 7.54 cents 7.41 cents
seat mile
Operating profit per seat 1.44 cents 1.48 cents 1.7 cents 0.97 cents 0.61 cents
mile
 How Southwest
Comparison with is best
other Airlines
Compa Revenue Net Passenge Freight Fuel cost Customer
per Income r Revenue per Available
ny Available Revenue gallon seat mile
seat mile

American $0.107 $504M $20.7B $8.25B $2.12 $0.114

Airlines
Continental $0.112 $459M $13B $453M $2.18 $0.108
Airlines
Delta Airlines $0.112 $1.61B $16.9B $482M $2.24 $0.119

Jet Blue $0.0826 $18M $2.64B $0 $2.09 $0.0838

Airways
Southwest $0.099 $645M $9.46B $130M $1.7 $0.091
Airlines
Company
 People
Management
practices and
Cultures

Operative principle- “employees

comes first and customers comes
second”

Thesis- keep employees happy they

will keep customers happy

Changed personal department to

people department
 People
Recruiting, Management
practices and
Screening Cultures
andemployees
Hired Hiring for attitude and trained them for skills
Screening:
looked for people oriented applicants
focus on other people.
Traits for selection:
Team work for all job categories
Judgment for pilots and flight attendants
Unselfishness for flight attendant
In 2002 company reviewed 243,657
resumes hired 5,043 new employees.
 People
Management
practices and
Training Cultures

Training activities designed and conducted by

southwest’s university

Curriculum includes courses for new recruits,

employees, and leadership training

Orientation courses conducted two to five times a

week for new recruits

Good coaching and good listening on the part of

supervisees
 People
Management
Management practices and
Cultures
Style
Managers are expected to spend 1/3rd of the
time out of the office.
No suggestion box.
Informal office ambience.
Executives approachable.
Called by first names.
Employee empowerment.
Suggestions for reducing costs.
Empowerment for innovation.
Saved $250,000 by not putting logos on trash bags.
Replacing paper tickets with e-tickets.
Lean organization structure.
Candid meetings.
 People
Management
PROMOTION & practices and
COMPENSATION Cultures

• Supervisory position filled internally

• “Leading with integrity” classes for new
appointee
• Six months training for managers of large
operation
• 360 degree feedback
• 10 % above industry average
• Benefit packages relatively good
• Profit sharing plan
• employee bought shares of the company
 People
EMPLOYEE Management
RELATION & practices and
Cultures
NO-LAYOFF POLICY
 Highly unionized U.S. Airlines
 Employee – harmonious and non adversarial
 No restrictive work rules and no narrow job
classification
 No layoff policy

Employee productivity & awards

 High labor productivity

 Good on time performance by employee
 Number one in consumer satisfaction
 Most admired airline in world
 Top awards from business week & pc magazine
 Aftermath of
September
9/11

♥ Immediate Responses
♥ Heightened Security and Regulation
♥ Competitive disadvantage
♥ Industry Bailout and Taxation
Financing assistance
Two types of tax increase costs
♥ New Competitive Position
♥ Labor Relations
 Aftermath of
September
9/11
Airline Industry Southwest
Airlines
The number of flights No flights were cut
were cut by around 20
percent
Employees laid off no employees were laid
off
Temporary freeze on
hiring until Jan 2002
The delivery of new Negotiated a revised
aircraft on order deferred delivery schedule for the
or cancelled 132 Boeing 737 jets on
order
Speculation on how much Fare sales in January,
KEY SUCCESS
STRATEGIC
FACTORS
• Low Fares
COMPETENCIES
• Cost & Service culture
• More destinations
• Operational Efficiency
• Team of talented people
• Turn Around Time
• Hub / Secondary Locations • Operating Efficiency
• Aircraft Utilization
• Single Model Usage • Technology for cost reduction
• On time Performance
• Mgt of human capital
• Service Standards (Basic)
• Safety • Excellent Union Relations

Southwest Airlines provides reliable service and passenger

care at the lowest fares to the short haul, frequent-flying,
point-to-point, non-interlining traveler.
Just Plane
Smart THE Low Fare Airline
A SYMBOL OF FREEDOM

Southwest
Airlines