Operations Management at Southwest Airlines

In 1967, Texas businessman Rollin King and lawyer Herb Kelleher founded
Southwest as an intrastate airline, linking Dallas, Houston, and San Antonio. In
1971, Southwest made its first scheduled flight. Operating from Love Field Airport
in Dallas, Southwest adopted love as the theme of its early ad campaigns. And
now, Southwest Airlines (Southwest) is the fourth largest airline in the USA in
terms of domestic customers carried. Southwest has enjoyed the best customer
complaint record among all US airlines for the last 12 years. The company has
seen 30 straight profitable years. In 2003, Southwest was named by Fortune as
one of the most admired companies in the US. Southwest's success is largely
due to the way it has managed its operations and cut costs in various ways.
These include use of smaller airports, one type of plane, no frills service, point-to-
point flights and quick turnaround of aircraft. This case can be used to teach how
effective operations management leads to sustainable cost leadership.

In 2003, Southwest Airlines (Southwest) was the fourth largest1 US airline in

terms of domestic customers carried. The airline's major short haul, low-fare,
high frequency, and point-to-point carrier in the US covered 60 cities (59 airports)
in 30 states. It was the first airline to introduce a homepage on the Internet.
Southwest had enjoyed 30 straight profitable years. In November 2003,
Southwest achieved a 9.4% increase in traffic due to Thanksgiving Day. It also
recorded 3.76 million revenue passenger miles up from 3.44 million for the same
period in the previous year. Its load factor was 63.7% up from 60.5% in
November 2002.

While other airlines moved to the new Dallas/Fort worth Airport (DFW) in 1974,
Kelleher insisted on staying at Love Field, and gained a virtual monopoly there.
When Lamar Muse, Southwest's president, resigned in 1978, Kelleher was
elected as president and Chief Executive Officer. Thus began the career of one
of the America's most popular business leaders. In 1979, southwest started its
new service to New Orleans from Dallas, the first city outside Texas. In 1982,
southwest extended its services to San Francisco, Los Angeles, San Diego, Las
Vegas, and Phoenix. Southwest launched the "Just Say When” campaign in
1985, which established it as the point-to-point carrier in the nation.

Southwest's business model revolved around providing safe, reliable, and short
duration air service at the lowest possible fare. With an average aircraft trip of
roughly 400 miles, the company had benchmarked its costs against ground
transportation. But Southwest believed that cost leadership should not dilute the
quality of service. According to analysts, who had been tracking southwest
closely, the airline's approach had a lot in common with the approaches taken by
cost leaders in other industries. Southwest pursued a blanketing strategy similar
to that of the famous US retailer, Wal-Mart. When Southwest decided to serve a
new city, it typically scheduled flights from the new city to two, three or even four
destinations at which the company had previously established itself.

Southwest did not commence a service between any two cities until it was able to
devote the planes and personnel necessary to operate at least five to six flights a
day. Like Toyota, which manufactured small batches of cars in a cost effective
way, Southwest had developed competencies in turning around aircraft quickly.
Southwest planned to add two more nonstop flights between Baltimore and
Houston by 2004. With the additional flights, Southwest would offer a total of four
daily nonstop flights between the two airports. Southwest confirmed, it would
start a new service from Philadelphia on May 2004, with daily nonstop service to
Chicago midway, Las Vegas, Orlando, Phoenix, Providence, and Tampa Bay.