Diego Rodriguez, Deema Alomar, Seungyeon lee
10/05/09
Case Analysis Southwest Airline final draft
Jennifer Uhler
BPE reading, writing research
Background Summary
Southwest Airlines based in Dallas was founded in 1967 by Rollin King and Herb
Kelleher. It is one of the major domestic airliners which provides carrier and
transportation service. This company has 35,499 employees and it runs over 500 Boeing
737 aircraft in 67 cities in the US. Southwest’s principal values are:

Providing low-fare and short haul service.

Offering the highest quality of customer service.

Putting a lot of importance on the fair treatment to its customers.

Building friendly relationship between its customers and employees.
Southwest Airlines has achieved a great position in the airline industry by
adopting five important strategies.

First, using the minor league airports which have helped the company to
reduce traffic delays and increase passenger convenience.

Second, flying one kind of aircraft has helped it to achieve lower training
cost.
1

Third, reducing turn-around time by using point-to-point strategy, has
avoided the use of complicated reservation process system.

Forth, not offering assigned seating and preferential treatment on
frequent fliers, has led the company to have better ticket price.

Lastly, emphasis on building good relationship between passengers and
attendants has been a well valuable factor.
Southwest uses a different kind of reward programs. For instance, the reward for
frequent fliers includes free flights according to the number of flights; which means if
you fly eight round trips or sixteen one way trips, you will get one free round trip ticket.
In addition the company offers free drink coupons, toll-free reservations phone numbers,
and credit with a preferred partner, which means if you take fifty round trips in a year,
you can designate one person to travel with you for one year.
Southwest Airlines main competitors are: Continental Airlines, USAir ways,
Delta, United airlines, and American Airlines. As you can see in the table below, the
current days have been really challenging for the industry. However Southwest has been
able to increase its operating revenues.
Operating revenues
Company
2 Q 2001
2Q 2000
Dif
Southwest
1,554
1,461
93
USAirways
2,493
2,433
60
Delta
3,776
4,469
(693)
United Airlines
4,658
5,109
(451)
ref. Rapid rewards at Southwest Airlines
2
Southwest decided to go public in 1977 with the ticker symbol LUV. The
company gained $11,023 million in 2008, and today its stock price reaches $9.83. Its
strategy as an egalitarian company has let the company achieve success. However some
frequent passengers have raised some questions about the policy of avoiding preferential
treatment for its loyal customers.
Major problem
The Southwest Airlines major problem is the threat to lose some of its frequent
customers. The case illustrates two opposite kinds of frequent passengers:

The first one is William Mark, who loves almost everything that
Southwest provides such as: the opportunity to come earlier and have a
great seat, the absence of meals, and the ticket prices.

The other one is Liz Bast, who loves the policy of using minor league
airports, but has complaints related to the ways of seat assignment, the
rules about upgrading restricted tickets, and she wishes to have
preferential treatment, especially because she flies more than 100.000
miles per year.
The customers like Liz Bast might be looking for another airliner company. Therefore,
Southwest needs to figure out one strategy which helps to avoid this problem.
3
Contributing Factors:
The threat to lose some of Southwest’s frequent customers is caused by five
factors:

Recheck-in baggage: Passengers with connected flight who are going to switch to
another airline have to pick up their checked baggage and recheck-in with the next
airline.

No assigned seats for passengers: Southwest used first-come first-served system in
seats assignment, which means people who arrived first will get the better seats. This
is an issue because passengers might easily change their preferences and fly with
other airlines. For example, Liz Bast is a frequent customer of Southwest Airlines, but
because she is always busy she comes late to her flights and the company cannot offer
her the seat she wanted. Liz’s problem will be solved if she could book a specific seat
and this service is not valid at Southwest Airlines.

Rewards count on trips number: there is no credit given to passengers on how
many miles they flew, but free flights are offered according to the number of trips
taken. Therefore, customers could choose Southwest Airlines for only short flights
because the length of flight is not a factor in the company reward system.

Restricted fare tickets: Passengers with restricted fare tickets cannot use their
tickets if they missed the flight without paying the difference even if they were
frequent customers. This strict policy gives the customers a feeling that the company
does not value their business.
4

High competition in the industry: 2001 was so difficult for airlines industry, the
Southwest’s competitors might be thinking of attracting its loyal customers for their
benefits.
Advantages and Disadvantages of Potential Solutions
First Solution:
Southwest Airlines makes an advertisement campaign, which emphasizes not only
its low fare but also high quality customer service.
Advantages:

It will help increase the company’s image and awareness.

If the company construct a good advertisement campaign, it will increase its sales
and that will lead to increase the company’s revenue

It will be a good communication tool for the company to reach out to its
costumers and let them know about the company’s value.
Disadvantage:

The campaign might increase sales, but it would not give what frequent customers
really want.

The campaign will be costly and it is possible for Southwest to spend a fortune on
it and get a little profit.
5
Second Solution:
Southwest changes its policies on seat assignment and ticket restrictions in two
ways:

By paying $25 extra fee, the customers can choose their seat.

For frequent customers, who have flown more than five times per year, there
will be no charge on their restricted fare tickets if they miss their flight.
Advantage:
Using this strategy we think that Southwest might retain costumers who expected
to be treated with some priorities or differentiation. Likewise, we consider that with this
strategy the company might increase its incomes, and also attract some clients of its
competitors.
Disadvantage:
The company identity will be changed from an egalitarian company to a privilege
one. Therefore, this policy might confuse clients about what the real target is.
Recommendation:
We suggest the second solution, which is to change the company’s policies on
seat assignment and ticket restrictions, for five reasons:

First, the main problem will be solved by giving clients, such as Liz
Bast, the opportunity to decide their seats with extra fee. In addition,
6
this solution will keep the company’s customers more satisfied and at
the same time increasing their loyalty.

Second, solution number two will increase the company’s revenues.
According to The Wall Street Journal1, by receiving extra fee on
assigning seats, Southwest could add seven hundred fifty million
dollars ($750.000.000) in its year revenues.

Third, if you take a look at first solution, you can see that it will
increase the awareness of the company products, offers, and
strengthen the company’s image. However, it will bring more costs to
the company by spending more money on its advertising campaign

Forth, it is a long-term solution. By giving an advantage to the
customers who make their reservation earlier, Southwest will
strengthen its position among competitors, and the major problem will
be solved.

Finally, with the second solution, Southwest airlines should focus
more on its customers reward system and improve it. Moreover, in a
very competitive sector where Southwest operates, it must rely on
customer’s loyalty and with such reward system it should attract more
customers.
1
The Wall Street Journal, Southwest Airlines Finds a New Fee, By Mike Esterl, September 2, 2009
7