Southwest Airlines.

Case Study: Southwest Airlines

Introduction

History

Southwest Airlines began service June 18, 1971 with flights to Houston, Dallas, and San Antonio. Southwest has grown to become the fourth largest U.S. airline (in terms of domestic Customers carried). 1998 marked Southwest's 26th consecutive year of profitability. Southwest became a major airline in 1989 when it exceeded the billion-dollar revenue mark. Southwest is the U.S. only major short-haul, low-fare, high frequency, point-to-point carrier.

Southwest was conceived in 1967, folklore says it all happened on a napkin. Rollin King, a client of Kelleher, then a lawyer had an idea for a low-fare, no-frills airline to fly between major Texas cities. He doodled a triangle on the napkin, labeled the points Dallas, Houston, and San Antonio, Texas. King's idea was to offer flights with fares so low, people would choose to fly instead of drive to those destinations. And thus, the tale of Southwest Airlines began.

In the early years, Southwest faced other legal battles. Dallas Love Field, where Southwest began, is close to downtown Dallas, and could not geographically expand at the very time when air traffic was increasing. A new major facility, Dallas/Ft. Worth International, replaced it in 1974. But it was 30 min. from downtown Dallas. Southwest remained at Love Field with a drawback. Competitors pressured Congress in 1978 to bar flights from Love Field to anywhere outside Texas. Southwest was able to negotiate a compromise called the Wright Amendment that allowed flights from Love Field to the four states contiguous to Texas. In retrospect the Wright Amendment forced onto Southwest a key ingredient of its later success: the strategy of short flights.

Southwest grew through the 70's and dominated the Texas market by appealing to passengers who valued price and frequent departures.

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In the 1980's, Southwest's annual passenger traffic...