Greg Dawson

Southwest Airlines

Add Longer, No-Frills Flights

 

  1. Herb Kelleher and a group of investors put up $560,000 TO FUND Southwest in 1968.
  2. Herb’s investment was $20,000.
  3. There idea was low fares, no-frills, and frequent flights airline travel between major Texas Cities.
  4. Most of their planes are gold and red.  They are not much to look at.  In fact, they look ordinary, nothing fancy.  Although there are a few planes now pained in the image of Shamu—the well- known killer whale of Sea World.
  5. It was a battle just to get Southwest off the ground. 
  6. By the 1980’s Southwest’s annual passenger travel count had tripled.  At the end of 1989, its operating costs per revenue mile was just under 10 cents.  Most other airlines were approximately 15 cents.  Here is a 5 cents advantage.
  7. By the early 1990’s Southwest had a profit of 27 million when American lost 253 million, Delta lost 216 million, and United lost 175 million respectively.
  8. Many of Southwest’s fares were so low that they were competing with the bus lines and even the passenger automobile.
  9. The next obvious step was the tapping of populous California.  Now Southwest was being compare to the “500 pound cockroach, too big to stamp out”.
  10. Southwest was now at a point where they could reap the benefits from cost containment, employee commitment and conservative growth.
  11. Southwest uses a single airline type, the Boeing 737, for all its planes.  There cost of training is lower than the industry average.
  12. Kelleher used Guerrilla warfare by concentrating efforts against stronger competitors in only a few areas.  Now they have extended this effort to include a much larger area.
  13. Southwest has proven that a small airline can reap tremendous benefits by adding flights to major cities. 
  14. Why do people fly:
    1. To get to a set destination
    2. Safely

Have you ever been to the airport where you were not traveling ticketless.  Look at the Southwest line compare to the other airlines.  Sometimes their lines are several hundred feet long.  People flow to the lowest price.

 

Stockholder wealth.  Airlines make money when their planes are in the air. 

In the past, when southwest would open a hub and add routes, other airlines would either lower their fares or basically give the business to Southwest.

 

By not offering meals, assigned seats, or luggage transfer, Southwest has been able to undercut the prices of its competitors and still earn large profits when their competitors were losing millions.

 

Since Southwest has been so successful in the past with their low fare, no frills flights, the next logical step would be for them to tap into the profits of adding longer low fare, no-frills flights.

 

They have found a niche, they just need to expand into other markets.  They have the know-how and abilities to make their competitors squirm.

 

Passengers will drive to where a Southwest hub is located to save money.  They will do this as long as quality, comfort, or service is not sacrificed.

 

Frequent flyers

Southwest has the highest level of customer satisfaction in the airline industry.