Southwest Airline Corporation

Case 3-1: Southwest Airline Corporation

About the company

Southwest, the well known airline corporation, started from 1971 with three Boeing 737 aircrafts serving only three Texas cities: Dallas, Houston, and San Antonio. In .2004, the company provided more than 417 Boeing 737 jets serving 60 airports across 31 states. Southwest reached $6.5 billion in revenue at year end. According to a comparative financial data in 2004, Southwest had $4.8 billion in net income as compared to $3.8 billion for JetBlue and negative data for United, American, and Delta.

In 2002, Business Ethics magazine listed Southwest to its “100 Best Corporate Citizens”, based on the company’s excellent service for various stakeholder groups. In 2004, Southwest was awarded by InsideFlyer magazine for best Customer Service, best bonus promotion, and best award redemptions. In 2005, Southwest was recognized by Fortune magazine as the most admired airline in the world and among all industries and listed as number five among America’s Top Ten most admired corporations. At the same year, the American Customer Satisfaction Index (ACSI) recognized Southwest Airlines as leading the industry in customer satisfaction.

Strategy and Control System

Like other corporations, Southwest had the same goal: maximize corporate valuation, make profit for shareholders. To realize this goal, Southwest applied different strategies than its competitors. Corresponding management controls were used to ensure the effective implementation of the strategies. The first strategy is low cost. Southwest had the lowest operating-cost structure in the domestic airline industry, which gave the competitive advantage to the company in the airline industry. To lower the costs, Southwest didn’t offer amenities such as meals, seat assignments, and baggage handling. It paid the crews by trip and used less congested airports such as Baltimore and Manchester. Southwest offered the online bookings via southwest.com, which saved the salary expense for sales employees. About 60% of revenue was generated by online bookings.

Second one is low fare. Low fare strategy is essential for the airline. Southwest’s customers had alternative option for ground transportation, so the company had to offer lower fares to succeed. Southwest had the lowest and simplest fares in the domestic airline. The company relied on the increased demand from charging low fares to capture the market. Thanks to the company’s low cost strategy, Southwest consistently passed on the cost savings to the customers.

Third one is customer satisfaction. Customer satisfaction is important to bring more business and earn more profit for service industry. To gain customer satisfaction, the company offered high quality service, low discount fares, convenient