Southwest Airlines

Running head: SOUTHWEST AIRLINES

Southwest Airlines

William F. White

Grand Canyon University

Introduction

Southwest Airlines took their first flight in June 18, 1971. The company got underway more then four years earlier but had a number of tough lawsuits against them before they were able to get their first plane up in the air. Southwest Airlines began serving the Texas cities of Dallas, Houston and San Antonio. And then in 1979, Southwest Airlines finally made their first voyage outside of Texas to New Orleans, Louisiana.

In an industry that saw an entire industry literally destroyed by the events of 9/11, airlines were filing bankruptcies, most notably United Airlines. Southwest, on the other hand, has constantly made a profit for 30 years and added value to their business. So much so that Serafimov (2004) states that 200 shares of Southwest stock purchased at just over twenty-two dollars per share back in 1985 is now worth just over $24,000. This translates to a 17% increase per year. It is the purpose of this paper to discuss the business juggernaut that is Southwest Airlines and its leader Herb Kelleher.

Intangible assets are more important than tangible ones. How is this evident at Southwest?

Investopedia.com defines an intangible asset as an asset that is not physical in nature such as corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies). Human capital is an intangible asset and arguably the most valuable asset held by an organization today (Weatherly, 2003). It is human capital that is paramount at SWA. So much so, on the SWA website, the say this about their employees:

We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer (Southwest, 2007).

Heskett (2004) reports that SWA is extremely picky when it comes to hiring. The company feels as though they are all a big family and each employee must get along with one other.

How easy will it be to replace Herb Kelleher at Southwest? How is your answer related to the concept of intangible assets?

It will be a tough hole to fill when it is time to replace Herb Kelleher at Southwest Airlines. Just as baseball has irreplaceable heroes like Ruth, Aaron, and DiMaggio, so does the business world such as Donald Trump, Sam Walton and Herb Kelleher. What Kelleher brought to the table that few have is the concept of human capital, an intangible asset. As was mentioned previously, Kelleher took stock in his employees and based his entire airline on the premise that happy employees make for employees that care and take ownership. That included education at their university and other seminars and the like. Very few leaders, however, focused on their employees. Instead, it was the bottom line. While the bottom line is greatly important, it doesn’t necessarily create a competitive advantage. Kelleher created a valuable core competency and apparently this has helped SWA become one of the most successful airlines in the history of aviation.

Can Southwest sustain its competitive advantage?

Southwest Airlines enjoys many competitive advantages in the airline industry. A competitive advantage is achieved when a company or business can provide the same value as its competitors but at a lower price, or can charge higher prices by providing greater value through differentiation (Competitive Advantage, 2007). The competitive advantages, supplied by Serafimov (2004), are:

1. Low-cost pricing business model. While customers might have to get over not having assigned seating or any other amenities, customers do like