Hillary Joiner, Nathan Fisher,

Brett Huey & Phillip Duffy

June 2013

SOUTHWEST AIRLINES

• In 1982, Southwest Airlines had 27 planes, 270 million in revenues, and flew to 14 cities.

• We now employ 538 planes, operate in 69 cities, covering 35 states, and rank 164th on the Fortune 500 list.

• For the last 39 years, we have relied on an organic growth strategy stemming from cost leadership and a unique corporate culture:

• Dedicated employees allowed for competitive labor costs. Employees are paid 30% less than competitors, but are offered valuable stock options as extra compensation.

• Flies out of less congested airports to get quicker turnarounds.

• Only operates on Boeing 737

• No “frills”

BACKGROUND

BUT…

It’s time for a new strategy.

NEW LEADERSHIP• Herb Kelleher relinquishes power after building company around his image of customer service

and employee loyalty

• Remained chair of board with focus on long range

• Colleen Barrett

• New President and COO

• Was the culture keeper since early days of company

• James Parker

• Resigned in 2004 amid labor negotiations with flight attendants

• Gary Kelly

• Now CEO

• Expanded company to key airports through M&A

• Understood further cost reductions would be hard to come by without modest fare increases and layoffs

CULTURE & GROWTH: EMPLOYEES• As company grows so does distance between employees and management

• Small staff with increasing passenger load and frequency

• Leads to more bags and shorter time, with no pay increase

• Flight attendants asked to work longer hours

• Boosted productivity but no pay increase, stock value also declining

• Southwest is no longer underdog so their pay should match the success of the company

CULTURE & GROWTH: COMPANY• To increase productivity and convenience for customers, must expand to more

airports

• Key acquisitions of gates in Chicago, Atlanta, Pittsburg, Fort Meyers

• More online reservations and narrowing labor-cost advantage with major airlines

• Leads to increase in rates and possible layoffs

• Expansion of JetBlue & AirTran would be direct threats

• Must increase amenities to compete with similar airlines

• Leather seats & in-flight entertainment

http://www.youtube.com/watch?v=DYA_ivyj3kE&t=0m40s

Strengths-Human Capital-Social Network-Culture-Overall Cost Leadership

Weaknesses-Accustomed to organic growth strategies in an industry that now requires nonorganic growth-No segmentation (first class, etc.)-Most employees are unionized.

Opportunities-More U.S. cities-International Flights-New target markets: Hispanics and elderly

Threats-Economic recession- less people are flying-Fluctuating oil prices-Competition (Delta, US Air, etc.)

SWOT ANALYSIS

• How do we continue to grow? (Alternative growth solutions)

• LUV our people (Internal Strategy)

• LUV our customers

• Focus on new markets

GIVE A LITTLE LUV

• Return to our core values

• Herb Kelleher said: “We want people who do things well, with laughter and grace.”

• With over 35,000 employees and the acquirement of Airtran introduce a veteran mentor program to integrate new employees into OUR culture.

• Number of Departures

• Maximize productivity of people and machinery, add additional departures each day.

• Cost Cutting – “Airlines don’t have revenue problems, they have cost problems.”

• Ensure pilots feel involved internally by contributing new ideas on how to save fuel.

• Continues to keep service cost low, because who knows the skies better than our pilots.

LUV OUR PEOPLE

• Core Business

• Customer Service – we just happen to provide airline transportation.

• Triple Crown Award Winner

• Our Philosophy- “Service for Smiles and Profits”

• Encourage our employees to treat customers and customer service as the most important aspect of their job.

• Provide the best value for our target consumers dollar (frequent schedules, comfortable seats and on-time departures).

• Add segmentation in seating for customers willing to pay more.

• Our Mission

• The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

LUV OUR CUSTOMERS

• Focus on Product Positioning in New Markets.

• Alert customers of our: Low-fares, short-hauls, high-frequency, and point-to-point carrying.

• Southwest Cities

• Between 2006 and 2010, we grew from 63 to 69 in numbers of cities served.

• Recognize the new markets (Washington Dulles, Denver and Atlanta) through promotion (media blitz).

• Continue to pursue more U.S. cities.

• Southwest Countries

• Begin working on expanding to international cities. International travel is growing and growing in today’s world.

• Target Hispanic and elderly populations

• “We want to have greater appeal to more customers nationwide,” Kelly said.

NEW MARKETS

• Southwest Cities

• Southwest Countries

• Target Hispanic and elderly populations

OUR RECOMMENDATION: NEW MARKETS