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CASE STUDYANALYSIS:
SOUTHWEST AIRLINES IN 2010
Matthew Tyler Harman
MBAA-635 Business Capstone Course

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Southwest Airlines has had an interesting history in the aviation marketplace. Thompson
as stated that, “the U.S. airline industry had lost money in 15 of the 30 years from 1980 through
2009, yet Southwest had reported a profit every year since 1973” (Thompson, et al.). This airline
has a uniquely different corporate strategy that is primarily focused on offering a low-cost
service to consumers.
Southwest has maintained the same image that they entered the market with, a low cost
domestic carrier. Despite competitors introducing add-on fees, Southwest has kept the same all-
inclusive price. This has developed a large following and is typically offset with the
nonrefundable policy. This strategy is interesting as the company has remained profitable
despite rising external costs. This constant profitability can be attributed to the fact that a lower
cost airline may be able to generate a higher load factor. Competitors may be offering higher
prices to offset the rising outside costs but may not be filling their capacity. Thompson
illustrates this by saying, “Southwest was a shrewd practitioner of the concept of price elasticity,
proving in one market after another that the revenue gains from increased ticket sale and the
volume of passenger traffic would more than compensate for the revenue erosion associated with
low fares” (Thompson, et al.).
Southwest has provided consumers with a clear understanding of their business structure.
This has been outlined in a mission statement that addresses employees, communities, the planet,
and stakeholders. The company is best known for its, “bags fly free” policy allowing consumers
to not have additional costs when flying. The company has specifically targeted business
travelers in regional routes by offering low cost flights with a range of flight times. They have
combined their lost cost options with several promotional programs that target, “frequent fliers”.
Southwest has also indicated that they have develop other strategies including, “gradual

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expansion into new geographic markets, adding flights in areas where rivals were cutting back
service, curtailing flights on marginally profitable routes where numerous seats often went
unfilled and shifting planes to routes with good growth opportunities, and putting strong
emphasis on safety and maintenance” (Thompson, et al.).
The airline transportation industry is a highly competitive market with a diverse number
of competitors with differing strategies. The fight for market share is an ongoing struggle within
this division of the market and carriers are always searching for new ways to stand out. In the
past, Southwest has attempted a few methods to gain market awareness. These methods include:
1. The introduction of hostesses wearing colorful pants and white knee-high boots
2. Offering free alcoholic beverages during daytime flights
3. Use of the “Now There’s Somebody Else Up There Who Loves You” slogan
4. 10 minute plane readiness turnaround
5. Relocation to the Houston Hobby Airport
6. Realization of market serving business who were, “more time sensitive than price
sensitive”
“Southwest has developed the low cost domestic strategy to increase their market share in
the U.S. market. As costs continue to rise, Southwest has maintained a relatively low cost with
comparison to the competition. Thompson Southwest Airlines has drastically improved their
annual domestic passenger count over the past 10 years. As seen in Graph 1, they have become
the market leader in total number of domestic passengers.

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While Southwest has been reporting profits over the past 40 years, their operating profit
has shown a decline in the reported data from 2006-2009. The company’s operating profit has
decreased on an average of 2.6% over the reported period. Thompson indicates that, “operating
profit shows how much profit is earned on each dollar of sales which should have an upward
trend showing a higher number every new year” (Thompson, et al.). This trend is shown in
Graph 2 below.
0
20000
40000
60000
80000
100000
120000
Graph 1. Domestic Enplaned
Passenger Summary
2000 2002 2004 2006 2007 2008 2009
0
0.02
0.04
0.06
0.08
0.1
0.12
2005 2006 2007 2008 2009
Graph 2. Historical Operating Profit
Margin

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Southwest has successfully been permitted to offer a low pricing structure because of
their need for fewer aircraft. This need is developed directly from the airlines aircraft turnaround
program in which they are able to utilize the same aircraft on several flights in a relatively short
time. The company has consistently been the launch customer for Boeing which allowed them to
generate father savings. Technology has played a large role in the cost savings of the business.
Southwest has sufficiently realized the need for “ticketless” flights which has reduced the need
for paper products and staff. The costs per passenger miles reported by the market leaders from
2009-2010 can be seen in Graph 3.
Overall, the entire airline industry has seen a downward trend since the events of
September 11, 2001. This event has forced airlines to adhere to strict security measures on top
of higher overhead costs. These costs are also being realized as the consumer market continues
to rebuild their confidence in air travel. Another outside factor affecting the market as a whole is
the rise in fuel costs. While these outside factors limit the market profitability, the reported data
0
5
10
15
20
25
Graph 3. Cost per Passenger Mile
2005 2008 2009

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shows some variability in the difference between the load factor and total number of passengers
illustrated in Graph 3 below.
The internal management team appears to have a wide range of experience in aviation.
According to Thompson, “80 to 90 percent of Southwest’s supervisory positions were filled
internally reflecting management’s belief that people who had experience with Southwest would
better appreciate the demands based on those positions” (Thompson, et al.). Southwest’s average
compensation package is approximately 16% higher than the identified competitors. According
to Thompson, Southwest is also enplaning 16% more passengers with 7% less employees, on
average. Southwest has become an expert at low cost operations while maintaining a strong
performance in on-time flights, mishandled baggage, boarding denials due to oversold flights,
and passenger complaints.
Based on my analysis, Southwest has become an excellent low cost provider. One area of
improvement is the operating profit margin. The company must look at ways to utilize their
skills as an effective low cost provider and ensure that the revenue is greater than the operating
0
200
400
600
800
1000
1995 2000 2005 2007 2008 2009
Graph 4. Historical Passenger Data
1995-2009
Load Factor Passengers

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profit. One method that the company is already utilizing is the slow expansion rate. By entering
new markets slowly, the company will not invest to heavily on markets that may not be
profitable. In future actions, Southwest may have the option to obtain new markets through
acquisitions of partnerships. This type of action may help them break into the international
marketplace.

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References:
Thompson, A., Peteraf, M., Gamble, J., & Strickland, A. (2012). Crafting & executing strategy.
(18 ed.). New York, NY: Mcgraw Hill Irwin.