Southwest Airlines was founded in 1967 in Dallas, Texas and has grown to become the largest domestic airline in the U.S. with over 35,000 employees serving 65 million customers annually. Southwest pioneered the low-cost carrier business model, focusing on high aircraft utilization, point-to-point routes between secondary airports, and no frills service like no meals or assigned seating to keep costs low. This strategy, along with a highly productive workforce dedicated to excellent customer service, has allowed Southwest to be profitable every year for over three decades while maintaining the best safety record in the industry.

1. Service Operation Management at

3. Fun facts (www.southwest.com) Southwest reviewed 284,827 resumes and hired 3,363 new employees in 2006 (11.8%). Southwest carried 96.3 million passengers in 2006. Southwest served 93.8 million bags of peanuts in 2006. Southwest moved 265 million pounds of cargo in 2006. Southwest used about 1.6 billion gallons of jet fuel in 2006. The shortest daily Southwest flight is between Ft. Myers and Orlando (133 miles). The longest daily Southwest flight is between Philadelphia and Oakland (2,508 miles). Southwest has approximately 1,133 married couples. In other words, approximately 2,266 Southwest Employees have spouses who also work for the Company.

4. Southwest’s Business Model Providing safe Reliable Short duration air service Lowest possible fair Quality service Point to Point

5. Low Cost Differentiation Use a single aircraft model (Boeing 737) Focus on customer satisfaction Use secondary airports High level of employee dedication Fly short routes No meals New flight services for business travelers (phones and faxes) S.W.A.’s Culture, Values, Philosophies & Principles 15 minute turnaround time No reserved seats No travel agent reservations Integrated Low Cost/Differentiation Strategy

8. SW:Anatomy of a 15-minute Turnaround 7:55 Ground crew chat around gate position 8:06:30 Baggage unloaded, refueling 8:03:30 Ground crew move to their vehicles 8:04 crew moves towards gate 8:15 Jet way retracts 8:08 Boarding call ,baggage loading, refueling complete 8:07 Passenger off plane 8:10 Boarding complete. ground crew leaves 8:15:30 Pushback from backs 8:18 Pushback disengages plane leaves for runway

9. How SW strategy is Implemented No baggage transfers No meals Limited Passenger service No connection with other airlines No site assignments Short hual,point to point travel Very low ticket prices Passenger related departure High aircraft utilization

12. SW’s Top Ten Airport-Daily Departure Southwest avoided congested airport. High employee productivity. Reliable on time performance.

13. Third-Degree Price Discrimination The firm identifies different consumer groups, in the market, each with a different demand curve. Southwest Airlines recognizes that any given flights has different types of travelers business travelers vs. vacation travelers To maximize profit, the firm sets a price for each group by equating marginal revenue and marginal cost. Equivalently, by using the inverse elasticity pricing rule (IEPR)

14. Conditions for price discrimination A firm must have some market power to price discriminate The demand curve the firm faces must be downward sloping Southwest knows that it can attract more customers at lower fare price The firm must have some information about the different amounts people will pay for its product. Southwest must know how reservation prices or elasticities of demand differ across consumers A firm must be able to prevent resale, or arbitrage. Customers need to present an identity card before boarding

15. Corporate Culture Tickets must be bought from the airline itself, the phone or online Extra Rapid Rewards - frequent flier program - credits for online booking users only Customers are assigned to a boarding group depending on check-in time - find their own seats on the plane Colorful boarding announcements and crews that burst out in song instead of no video entertainment Meal service is less than on historically full service airlines

16. Looking Ahead Increase more non stop flights Enrich operation system Include daily non stop flights in busy air traffic route.

17. Conclusion Southwest Airlines uses third-degree price discrimination to fill the plane with travelers in the most profitable way Depending on the price of elasticity of demand for tickets Charge a higher price for business travelers who have relatively inelastic demands Charge a lower price for vacation travelers who have relatively elastic demands

18. That’s It