CASE 16 Southwest Airlines Andrew Inkpen and exit, passenger fares, mergers and acquisitions, and In 2013. Southwest Airlines (Southwest), the once scrappy routes covered by only one carrier. Cost increases were of the largest in the world. The company, unlike all of its were only two market segments: those wio coald afford tn terrorist attacks, and the 2008-og recession. An insight many new firms to enter the market. The finaticial impact airline rates of return. Typically, two or three carriers were You are now free to move about the country provided service in a given market, although there underdog in the US. airline industry, was one of the larg passed along to customers, and price competition was ere est US airlines and, based on number of passengers, one almost nonexistent. The airlines operal major competitors, h to fly, and those who couldn\'t decades and had weathered energy crises, the September ad been consistently profitable for Deregulation sent airline fares tumbl allowed into Southwest\'s operating philosophy can be found in on both established and new airlines was eirmous. The fuel crisis of 1979 and the air traffic controilers strike e company\'s 2001 annual report Southwest was well poised, financially, to withstand in 1981 contributed to the industry\'s diffiruities, as did the potentially devastating hammer blow of September ii the severe recession that hit the United Stales during Why? Because for several decades our leadership phi the early 198os. During the first decade of deregulation losophy has been: we manage in good times so that our more than 15o carriers, many of them start-up airlines Company and our People can be job secure and prosper collapsed into bankruptcy. Eight of the u major air through bad times.... Once again, after September in, our lines dominating the industry in 1978 ended up filing philosophy of managing in good times so as to do well for bankruptcy, merging with other carriers, or simply in bad times proved a marvelous prophylactic for our disappearing from the radar screen. Collectively, the industry made enough money during this period to buy As Southwest entered its 4and year of service, the two Boeing 747s. The three major carriers that survived company was facing some major challenges. Legacy intact-Delta, United, and American ended up with carriers in the United States had become more efficient, 80% of all domestic U.S. air traffic and 67% of trans- Employees and our Shareholders and the recent mega-mergers involving Delta/Northwest, Atlantic business. Exhibits 1A and iB provide summary Continental/United, and American/US Airways were shaking up the industry. Smaller companies like jetBlue, financial data for the major airlines. The rapid growth of Southwest was in stark contrast to the much slower aska, and Spirit were pressuring Southwest\'s cost growth of its major competitors advantage and low-fare focus. A major internal c Competition and lower fares led to greatly expanded of AirTra.

1. CASE 16 Southwest Airlines Andrew Inkpen and exit, passenger fares, mergers and
acquisitions, and In 2013. Southwest Airlines (Southwest), the once scrappy routes covered by
only one carrier. Cost increases were of the largest in the world. The company, unlike all of its
were only two market segments: those wio coald afford tn terrorist attacks, and the 2008-og
recession. An insight many new firms to enter the market. The finaticial impact airline rates of
return. Typically, two or three carriers were You are now free to move about the country
provided service in a given market, although there underdog in the US. airline industry, was one
of the larg passed along to customers, and price competition was ere est US airlines and, based
on number of passengers, one almost nonexistent. The airlines operal major competitors, h to fly,
and those who couldn't decades and had weathered energy crises, the September ad been
consistently profitable for Deregulation sent airline fares tumbl allowed into Southwest's
operating philosophy can be found in on both established and new airlines was eirmous. The fuel
crisis of 1979 and the air traffic controilers strike e company's 2001 annual report Southwest
was well poised, financially, to withstand in 1981 contributed to the industry's diffiruities, as did
the potentially devastating hammer blow of September ii the severe recession that hit the United
Stales during Why? Because for several decades our leadership phi the early 198os. During the
first decade of deregulation losophy has been: we manage in good times so that our more than
15o carriers, many of them start-up airlines Company and our People can be job secure and
prosper collapsed into bankruptcy. Eight of the u major air through bad times.... Once again,
after September in, our lines dominating the industry in 1978 ended up filing philosophy of
managing in good times so as to do well for bankruptcy, merging with other carriers, or simply
in bad times proved a marvelous prophylactic for our disappearing from the radar screen.
Collectively, the industry made enough money during this period to buy As Southwest entered
its 4and year of service, the two Boeing 747s. The three major carriers that survived company
was facing some major challenges. Legacy intact-Delta, United, and American ended up with

2. carriers in the United States had become more efficient, 80% of all domestic U.S. air traffic and
67% of trans- Employees and our Shareholders and the recent mega-mergers involving
Delta/Northwest, Atlantic business. Exhibits 1A and iB provide summary Continental/United,
and American/US Airways were shaking up the industry. Smaller companies like jetBlue,
financial data for the major airlines. The rapid growth of Southwest was in stark contrast to the
much slower aska, and Spirit were pressuring Southwest's cost growth of its major competitors
advantage and low-fare focus. A major internal c Competition and lower fares led to greatly
expanded of AirTran, a deal completed in 2011. To make the acqui average price to fly one
domestic mile dropped by more lenge for Southwest would be managing its acquisition demand
for airline travel. Controlling for inflation, the sition a success, the company would have to
integrate a workforce of more than 8,000 (about 25% the size of Southwest) and manage a fleet
of aircraft different from the Boeing 737s used by Southwest. than 50% since deregulation. By
the mid-1990s, the ar- lines were having trouble meeting this demand. Travel increased from 200
million travelers in 1974 to 7oo million in 20o7 in the U.S. Demand fell significantly during the
recession and then started to grow again in 2010. Despite the overall growth in demand, from
200 through 2o11 total financial losses for the U.S. airline The U.S. Airline Industry The U.S.
commercial airline industry was p altered in October 197 the Airline Deregulation Act. Before
deregulation, the ermanen industry exceeded s5o billion. 8 when President Carter signed The
financial performance notwithstanding, new stry. For exam- firms continued to enter the airline
indu Civil Aeronautics Board regulated airline route entry ple, during the period 1994 to 2004,
66 new airlines were Copyright © 2013 Thunderbird School of Global Management. All rights
reserved. This case was assistance from Chee Wee Tan, Valerie Degroot Wes Edens, lairMashru,
Sandip Patil, and Arturo Wagner, for the and not to indicate either effective or ineffective
management. prepared by Prolessor Andrew Ink pen, with research purpose of classroom
discussion cnly
Solution
From the above two resources/capabilities, we can say that the organization has temporary
competitive advantage. If imitation factor turns into 'yes', then it can move to sustainable
CA.Resource/CapabilityValuableRareCostly to ImitableOrganization ExploitedLow cost
structureYesYesNoYesFree BaggageYesYesNoYes