Southwest Airline Case

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US Airline Industry

Before 1978 derogation … Civil Aeronautic Board regulated airline route 2-3 carriers provided the service in a given market cost passed along to customers, no price competition After derogation… many new firms enter the market Fuel crisis of 1979 1981 air traffic control strike=more industry difficulties More than 150 bankrupt carriers during the 1st decade of deregulation

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US Airline Industry

1980s: financial debts increase due to expanded demand brought about by low fares 1990s: new aircraft orders lowered (not profitable market) to avoid debts Mid-1990s: increase demand, from 200 million (1974) to 500 million(1995) In 1999, global improvement of airline industry September 11, 2001 attack= chaos in the market

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New Pressures on Airline Industry

Security : need to increase war risk insurance Customer dissatisfaction: service problem, call for regulation Labor costs: pressure expected to increase Aircraft maintenance : higher maintenance/replacement costs, stricter government regulation for older planes Debt servicing: airline industry debt load exceeded US industry averages Fuel cost: big impact on the total cost was uncertain Air traffic delays: due to higher travel, airport congestion=negative influence on profitability.

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Southwest Airlines Background

1967: Herb Kelleher and Rollin King founded SW 1970: management team built June 18,1971: 1st fly in Texas-Houston, Dallas, San Antonio (“Golden Triangle) with 3 Boeing 737s aircrafts and 25 employees Operation focus: short-distance flights (>500 miles), point-to-point flights, only 737 Boeing,high frequency flights, low fares, no international flights 1st national carrier to sell seats online ($1 per booking) 1st airline to use ticketless travel (January 31,1995) 2000: biggest aircraft order (94 737s Boeing) >>> 355 fleets in 2002 2003: 4th largest US airlines in terms of domestic passengers carried

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Southwest Performance

Passenger load factor is the...