Southwest Airlines

Christine Dao

Katrina Elicagaray

Kimberly Tran

April Weir

Airline Regulation

• 1938 Civil Aeronautics Act

• Civil Aeronautics Authority (CAA)

• Its Mission

The Beginning…

• Founded in 1967

• Founders were Rollin King, John Parker and Herb Kelleher

DAL

SAN ANTONIOHOUSTON

“Herb, let’s start an airline” and “Rollin, you’re crazy. Let’s do it!”

The Napkin Concept

Mission

• The Mission of Southwest Airlines

• To Our Employees

Executives

• Headquarters in Dallas, Texas

• Current LeadershipHerb Kelleher – Chairman of the Board and Chairman of the Executive Committee

Jim Parker – Vice Chairman of the Board and CEO

Colleen Barrett – President, COO, and Corporate Secretary

Top 3 Strengths

StructureOperations

CultureBeliefsPolicies

Innovation

Southwest vs. the Majors• Debt

• Pricing

• Hub & Spoke

• Labor Costs

• Operations

• Understanding the Market

• Customer Service

Debt

• Major airlines– High debt– High daily losses– Low cash

• Southwest– Little debt– Low daily losses– High cash

Major airlines include Alaska Air, America West, America Trans Air, American, Delta,

Continental, Northwest and United. Not included is US Airways, which is bankrupt

and no longer traded on the NYSE.

Airline Aftermath How the sector has performed since 9/11

Carrier Stock % Change Since 9/11*

Earnings Comparison

Q2 2001 Q2 2002

American -69% -$105 million

-$465 million

US Airways -94 -24 million -248 million

Delta -55 -123 million -162 million

Northwest -55 -55 million -93 million

Continental -76 42 million -35 million

Southwest -18 176 million 85 million

United -90 -292 million -341 million

-America West -76 -15 million -10 million

*As of Thursday, Sept. 5, 2002. **Excludes all charges.

Source: Company reports, Baseline, TSC Research

Prices

• Competition• Seat prices• Operation costs

– Fuel

– Airport fees

• Hubs vs. surrounding airports

Hub & Spoke

Labor Costs

• Union vs. Non-Union– Salaries

– Labor costs as a percentage of revenues

– Employees per flight

Operations

• Maintenance

• Training

• Boarding procedures

• Airport Fees

• Plane design

• Idle time

• Food Service

Operating Costs

0

200

400

600

800

1000

Operating Costs

JetBlue

Southwest

American

Continental

Delta

AmericaWestNorthwest

United

US Airways

Understanding the Market

• Niche market– Long haul flights– Short haul flights

• Price sensitive

• High customer service needs

Customer Service

• The Belief

• The Policies

• The Results

The Belief

“Southwest people believe that customer service involves more than an objective understanding of the customer’s need. It also means, …, “being attentive to the person behind the need, and responding to the person more than just responding to the need.” NUTS! Southwest Airlines’ Crazy Recipe for Business and Personal Success by Freiberg & Freiberg

The Policies

• Seating space

• Boarding procedures– Ticketing

– Safety

• Timeliness of flights

• Amenities

The Results

Best on-time service + Best baggage handling + Best customer Service = Triple Crown Award

5 Years Straight

Southwest Culture

Information Technology and Systems

What Helps Keep Southwest on Top?

IT/IS Helps Business Strategy

• Deploy’s Enterprise Software

• PROS Revenue Mgmt.

• CALEB Technologies Corps CrewSolver Software

• I2 Service Inventory Management

• Computerized Reservation System

• RAPID CHECK-IN

• Automated boarding passes

Focused Cost Leadership

• High frequency, short hops

• Low fair strategy

• Cost-effective inventory management

• Efficient and cost-effective recruitment

• Unique, high level customer service

What Major airlines are doing to compete

• Cutting jobs

• Retiring older planes

• Streamlining routes

• In the future, closing hubs

Combating Competition

• Structurally competitive through Operations

• Successful in utilizing Information Technology and Information Systems

• Creating a culture of Innovation and Great Customer Service

Southwest Beating the Competition

Thank You