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Southwest Airlines Case Study

1. Introduction
Southwest Airlines Co. (the Company or Southwest) operates Southwest Airlines, a major
passenger airline that provides scheduled air transportation in the United States and nearinternational markets. For the 43rd consecutive year, the Company was profitable, earning $2.2
billion in net income, an unprecedented achievement in the domestic airline industry.
Southwest commenced service on June 18, 1971, with three Boeing 737 aircraft serving three
Texas cities: Dallas, Houston, and San Antonio. The Company ended 2015 serving 97
destinations in 40 states in USA and seven near-international countries (Mexico, Jamaica, The
Bahamas, among others).
Based on the most recent data available from the U.S. Department of Transportation, as of June
30, 2015, Southwest was the largest domestic air carrier in the United States, as measured by
the number of domestic originating passengers boarded.
2. Southwest nowadays
Financial Results
Southwest boosted its available seat miles (capacity) 43 percent since 2010, driven by the
acquisition of AirTran in 2011. And, Southwest achieved an all-time high pre-tax return on
invested capital, excluding special items1 (ROIC), of 32.7 percent 1.
Total operating revenues were up 6.5 percent to $19.8 billion, on a healthy capacity increase of
7.2 percent, compared with 2014.
Taken all together, for Southwest was an exceptionally ambitious and successful year of
network growth and development. Despite the stout increase in capacity, they were able to drive
even stronger traffic growth, with load factors increasing in 2015 to an annual record 83.6
percent.
Cost Structure
Southwests use of a single aircraft type has allowed for simplified scheduling, maintenance,
flight operations, and training activities. Southwests point-to-point route structure includes
service to and from many secondary or downtown airports. They are typically less congested
than other airlines hub airports, which has contributed to Southwests ability to achieve high
asset utilization because aircraft can be scheduled to minimize the amount of time they are on
the ground.
Fare Structure
Wanna Get Away: fares are generally the lowest fares and are typically subject to advance
purchase requirements.
Anytime: fares are refundable and changeable, and funds may also be applied toward future
travel on Southwest.
Business Select: fares are refundable and changeable, and funds may be applied toward
future travel on Southwest. Business Select fares also include additional perks,
Marketing
In October 2015, the Company premiered a new advertising campaign called Transfarency SM.
The campaign emphasizes Southwests approach to treating Customers fairly, honestly, and
respectfully, with its low fares and no unexpected bag fees, change fees, or hidden fees.

1 The results were further enhanced by dramatically lower jet fuel costs, driven by a
collapse in oil prices.

Technology Initiatives
During 2015, the Company continued its commitment to technology improvements to support its
ongoing operations and initiatives.
The Company is in the midst of a multi-year project to completely replace its reservation system.
The Company has since begun implementing Amadeus Alta reservations solution as the
Companys future single reservation system for both domestic and international reservations.
Southwest.com
The Companys Internet website, Southwest.com, is the only avenue for Southwest
Customers to purchase and manage travel online. Customers trips can be planned and
managed directly from the southwest.com home page.
Employees
At December 31, 2015, the Company had approximately 49,600 active fulltime equivalent
Employees, consisting of 21,100 flight, 2,800 maintenance, 17,300 ground, Customer, and fleet
service, and 8,400 management, technology, finance, marketing, and clerical personnel
(associated with non-operational departments).
Next, we were able to acquire scarce slots and gates at Washington Reagan National and New
York LaGuardia Airports, adding 28 and 6 daily flights, respectively. While we dont have the
presence in these two airports we have in the DFW Metroplex, we are very pleased with the
performance of these new flights.

Impact of Fuel Costs on the Companys Low-Cost Structure; Fuel


Initiatives
Although 2015 fuel prices were lower than 2014 fuel prices, Fuel
and oil expense remained one of the Companys largest operating
costs. The table below shows the Companys average cost of jet
fuel for each year beginning in 2003 and during each quarter of
2015.
The Company enters into fuel derivative contracts to manage its
risk associated with significant increases in fuel prices; however, as
is evidenced by the table above, energy prices can fluctuate
significantly in a relatively short amount of time, and the cost of
hedging generally increases with sustained high potential for
volatility in the fuel market.

The Companys low- cost structure has historically been facilitated by Southwests use of a
single aircraft type, the Boeing 737, its operationally efficient point-to-point route structure, and
its highly productive Employees.