Jerome Martin

Southwest Airline Case Analysis

1. How does Southwest make money when other airlines dont?

a. Southwest has been in the airline business for 30 years. During those 30
years they run into troubles, near bankruptcy, yet they were still able to
sustain growth. During the economic downturn, terrorist attacks, and other
events that affect the airline industry Southwest was able to turn a profit
when others could not. One of the reasons is their point-to-point route
system. Unlike the Hub-and-spoke systems, P2P enabled Southwest to
speed the turnaround and increase its airtime of their aircrafts. This also
resulted in a greater utilization from their Boeing 737 fleet. Cutting the
average turnaround time to 24 minutes set new standards for the airline

industry, which saw 55-minute turnarounds on average. In addition they

dont assign seats, which eliminated the time in reconciliation of double
assignments of seats. Secondly, they didnt spread themselves thin over an
extensive system.
2. How should management respond to the fact that Southwest Airlines has fallen
next to-last place among major airlines in on-time performance as of September,
2002?
a. After the September 11th terrorist attacks, airports implemented heightened
security measures. This affected Southwests core way of business. One
way was that Southwest passengers carried a high percentage of their
baggage on board, which was limited by the FAA. It resulted in more
work and size of their baggage handling crews. Many of the 200 directives
issued by the FAA were security directives. These directives put
Southwest at a competitive disadvantage. Many directives dealt with
tracking passengers from the curb to their seat; SABRE was not designed
to provide these types of detailed reports. In turn they had to extinguish
the use of their reusable plastic boarding passes in favor of paper passes,
which had information about the selected passenger. Southwest used to
have the motto, You are now free to move about the Country. This was
created and directed towards travelers who would walk onto the plane
minutes before takeoff, since they kept their doors open till then. Since
their passengers were used to arrive later than other airline passengers,
they were subject to security searches more than any other airline
passenger.

3. Would you recommend to the management of the airline that it resume its historic
growth rate of 10% to 15% per year? Why? Why not?
a. Yes I would recommend management of the airline to resume its historic
growth rate. Maintain growth would allow Southwest to maintain a strong
balance sheet. One of their senior managers often said, manage in the
good times in order to service in the bad times. A growth rate of 10-15%
is not significant enough to be considered growing too fast, I would say
that it is a powerful growth rate that allows the company to create strategic
advantages based on size, with their focus on quality. This slow
sustainable growth will allow Southwest to move into new areas in the
country and not spread their numbers too thin. Also, by growing at a
sustainable rate they wont lose focus on their core competencies.
4. What are the implications for Southwest of the actual or threatened bankruptcies
of other major U.S. airlines?
a. Southwest is unlike any of their competitors. Because they focus on
sustainable growth, Southwest is able to maintain a strong balance sheet
and continue to make a profit. Their competitiors are barely skimming by,
which is a serious problem from Southwest. The airlines are viewed like
banks by the government.