A Financial Analysis
of Southwest Airlines Co.
Accounting for Financial Decisions BA812
Professor Wayne Drake May 20, 1998
Gillian Ainsworth Jennifer Goidell
Christine Ledoux Tarak Modi
Gerald Owens Robin Walters
Southwest Airlines: Twenty-Six Years of "LUV"
Twenty-six years ago, Rollin W. King scribbled three lines on a cocktail napkin, leaned across the table,
and muttered to his longtime friend: "Herb, lets start our own airline". Herbert D. Kelleher loosened his
tie and knitted his brow before replying: "Rollin, you're crazy." He then paused, grinned, and added,
"Lets do it!" 1They founded Air Southwest Company in 1967. The company incorporated as Southwest
Airlines in Texas, and commenced customer service on June 18, 1971. They began with three Boeing
737 aircraft serving three Texas cities - Dallas, Houston, and San Antonio. Today, Southwest Airlines
operates more than 243 Boeing aircraft and provides service to more than 50 airports located in 49 cities
in more than 24 states. Southwest Airlines offers approximately 2200 low fare, short-to-medium range
flights throughout the United States.2 Their stock-exchange symbol "LUV" symbolizes their home at
Dallas Love Field, as well as the theme of their customer relationships.
Today, Southwest is the nation's low fare, high customer satisfaction airline. Southwest has literally
written the book on low fares. The airline has never pretended to be anything more than a bus service.
With an average flight distance of 425 miles, Southwest Airlines' most significant competitor is ground
transportation. No matter how long the flight is Southwest offers only a single class, open seating, and
no meals. Southwest Airlines also maintains high frequency of flights and quick ground turnaround,
yielding approximately 20 minutes ground time between flights.3 By maintaining this consistency, they
have been able to drive cost-cutting efforts and provide superior service. Southwest flies from...