Southwest Airlines

By: Elizabeth Rivers

Southwest Airlines Mission Statement

• 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.

Vision Statement• Southwest’s vision for a sustainable future is one where there will be a balance in our business model

between Employees and Community, the Environment, and our Financial Viability. In order to protect our world for future generations, while meeting our commitments to our Customers, Employees, and Stakeholders, we will strive to lead our industry in innovative efficiency that conserves natural resources, maintains a creative and innovative workforce, and gives back to the communities in which we live and work.

History in the making• 1966- Rollin King proposed the business

plan of southwest airlines over cock tails to Herb Kelleher.

• 1971- After five years of planning, Southwest began flying between Houston, Dallas and San Antonio.

• 1972- Southwest was forced to sell one of its four planes to meet payroll

• 1973- Southwest has its fi rst profi table year, The fi rst of 36 straight.

• 1978- Herb Kelleher becomes interim CEO for several months.

• 1979- Southwest begins services in New Orleans until Congress deregulated the airline industry that it couldn’t fly outside of Texas the previous year.

• 1982- Southwest expands to California• 1985-Southwest begins service in

Chicago’s Midway Airport. Buys Muse Air, which was a competitor.

• 1989-Southwest annual revenue passes 1 billion dollars!!

• 1993-Southwest expands the Baltimore- Washington international Airport. Acquires another competitor Morris Air.

• 1996- Southwest expands to Florida• 2001- Kelleher steps down as CEO, but

remains chairman. He was replaced by James Parker. Kelleher’s former legal assistant Colleen Barrett was named president.

History (cont.)

• 2002- After the terror attacks of 9/11. Southwest began to use boarding passes with passengers names.

• 2004- Gary Kelly becomes the new CEO, replacing James Parker• 2005- Southwest joined forces with ATA Airlines and began to sell

travel packages to Hawaii.• 2006-Congress votes to repeal a law in 2014 that prevents the

company from operating long flights from its home base.• 2008- The Federal Aviation Administration proposes a 10.2

million civil penalty against southwest for using planes that hadn’t been inspected for fuselage cracks. Quite a few planes were fund to have cracks, after negations the penalty was reduced to 7.5 million. Kelleher steps down as chairman.

LeadershipHerb Kelleher, CEO Southwest Airlines

• Herb Kelleher is an outrageous, off-the-wall CEO that has built a unique organization and has been extremely successful in a very competitive market. Kelleher has an unorthodox style when compared to CEO's of other major corporations. This style is reflected in his organization's style.

• Herb Kelleher's leadership style is the opposite of the many autocratic leaders that have thrived in business for centuries. He does not "rule" over his employees but rather, rules with his employees.

• Kelleher does not contend that he is the only visionary at Southwest Airlines. He feels that anyone can make leadership decisions as long as they have experienced the pertinent situation. Kelleher imposes this notion on all of his employees. He leads them to believe that they can be leaders also.

• Kelleher's organization, as described by him, is an upside-down pyramid. At the bottom, are the upper management personnel and at the top are the front line employees.

Gary C. Kelly current CEO• Gary C. Kelly emphasized how important caring for

people. Kelly strives to balance three important areas of focus for the company: low cost, customer service and a focus on people.

• Kelly believes Communication is a key piece of being a leader. Example of one of Kelly leadership style: “Bags fly free “ is now a big part of the Southwest marketing campaign. Instead of using paid actors, Southwest utilizes its own employees for nationwide television and print commercials. Now that is one way to raise employee morale!

• Transformational leadership is to arouse the needs of the subordinates in accordance with the leader's own goals, the final result being performance beyond expectation. Kelly is a transformational leader. He does not control the relationship he has with his workers. He sees them as equals. Kelly knows that his workers know what the goals are that he needs accomplished at any given time. He helps them when they need it but most of the time just lets them work and do things at their own pace.

• Kelly also believes that a strong sense of self is important in a good leader. “You must fit with the team and the culture, but you must be yourself.”

Fun Southwest CEO Style

Customer Relations• One key fundamental difference in the Southwest Airlines' approach lies in its overall philosophy. The

company truly believes it is 'in the customer service business -- it just happens to fly airplanes.• An inability to address an emotional situation on the spot and to the satisfaction of the customer is key

to driving long-term satisfaction and customer loyalty. • Southwest customers are treated as friends and family. Customers receive birthday cards, customer

service reps develop first-name relationships and customers are invited to company events. • Southwest qualifies a customer service candidate for employment based on attitude, not experience.

The company believes that you can teach a person how to deliver quality service, but the attitude must be brought to the job.

• HAVE FUN

Aside from this focus, Southwest Airlines also made sure the job was fun. They knew if people were having fun on the job, they would be more apt to come to work with a great attitude and deliver great customer service. This was exemplified through airport games and activities when flights were delayed, putting customers at ease and creating an air of relaxation and fun instead of frustration and anger.

CUSTOMER QUALITY• According to the Airline Quality Rating for 2011, Southwest Airlines had

a customer complaint rate of .27 for every 100,000 customers in 2010, representing the top passenger satisfaction rating of all the airlines for:

• On-time performance • Baggage handling • Involuntary denied boarding’s.• Southwest has continued the high rate for passenger satisfaction, holding

steady from an industry best .21 for every 100,000 customers in 2009.• Southwest is also currently involved in the acquisition of AirTran

Airways, another airline with a history of positive performance and high customer satisfaction. The AirTran acquisition will allow it to increase its number of flights in the Washington DC market by developing a presence at Reagan National Airport, where none currently exists.

MarketingSouthwest Marketing Strategy • Southwest Airlines marketing

strategy has been consistent with the best low-cost strategy of any business. They focus on low ticket pricing, customer service, short non-stop flights and quick turnarounds.

• In order for Southwest to keep their low cost strategy meant that that they had to use the fuel efficient Boeing 737 aircraft, focus on efficiency (quick turnarounds) and eliminate in flight meals.

Who do they Target?

• Southwest’s primary target market is business travelers because they are the most frequent buyers and they are willing and able to pay more money than the average flier.

Promotion Strategy • Southwest is well known for

use of social media when it comes to advertising special promotes

• Facebook, YouTube, Twitter, Flickr, Nuts About Southwest and LinkedIn are some of the many social media groups they are apart of.

Marketing• Competitors see Southwest as

cold-blooded and ruthless. “Their approach is to search out weak companies and contest them out of business,” says Bryan Bedford, the chairman and chief executive of Republic Airways, which bought Frontier out of bankruptcy last year. “It’s no different than Wal-Mart Plunking a big- box store near a local family-owned grocery store; you either respond to the competition, or you get out.”

• Robert Jordan, Southwest’s vice president for strategy and network planning, sees things differently. “We never like to say we kicked somebody out of the market,” he says. “Everybody makes their own choices. But we can go into a new market, charge attractive prices and, given that people love our products, gain new customers.

Finances2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenue (USD Mil)

5,937 6,530 7,584 9,086 9,861 11,023 10,350 12,104 15,658

17,088

Net Income(USD Mil)

442 313 548 499 645 178 99 459 178 421

Earnings Per Share(USD Mil)

.54 .38 .67 .61 .84 .24 .13 .61 .23 .56

2011 note: Southwest bought AirTran for $1B and $500Mil in merger costs

Comparing Southwest's stock to other airlines

• P/E is a way to compare companies in the same sector/industry by taking the price of one share divided by its earnings per share over the past four quarters.

• Average P/E of the major airline industry is 14.6

• LUV is 26.5 meaning that investors are willing to pay a premium and future expectations are high.

Footnote *all numbers as of 4/30

SWOT AnalysisSTRENGTHS (Internal)• Firm operating strategy• Friendly staff• Best Low Fare Carrier• Strong brand image• Highest domestic depart• Growth (3.5%)

WEAKNESSES (Internal)• Declining profits and margins• Limited to 57 cities

domestically• Single Producer• Lowest number of morning

flights• Freight and Cargo is limited• Non-Segmentation

OPPORTUNITIES (External)• International Expansion• Longer Flights• Customer Satisfaction• U.S Market

THREATS (External)• Competition• Regulation/ Restrictions• High Unemployment/ Inflation• Joint ventures• Failure to meet Stakeholders

needs

BCG MatrixStars Question marks

Cash Cows Dogs

Southwest on Social Mediahttp://www.youtube.com/watch?v=DYA_ivyj3kE (Rap)http://www.youtube.com/watch?v=8wpUo_WdFb8 (Harlem Shake)

• http://www.nytimes.com/2010/11/21/business/21south.html?pagewanted=all&_r=0• http://www.behance.net/gallery/Southwest-Airlines-Marketing-Strategy-Plan/

7994453• http

://www.tmcnet.com/channels/customer-support-software/articles/87080-how-southwest-airlines-became-model-customer-loyalty.htm

• http://newsquestonline.com/southwest-airlines-continues-to-top-the-airline-quality-rating/225072/