Culture, Value,

and Operating
Practices

Presented by : MBM Group

3
 Company Overview...
Southwest Airlines, Inc. (NYSE:
LUV), is . . .
major domestic airline that
provides :…
♥ primarily short haul
♥ high-frequency
♥ point-to-point
♥ low-fare service
The third-largest airline in Founded 1971
the world by number of Fleet size 472
passengers carried and
the largest in the United Destination 63
States by number of Headquarter Dallas,
passengers carried s Texas
 Birth of Southwest ...
In late 1966, Rollin King and Herb Kelleher got
together and decided to start a different kind of airline

Attract passengers by flying convenient

Busine schedules, get passenger to their destination
ss
on time, make sure they have a good
Conce
pt experience, and charge fares competitive with
travel by automobile
Southwest was incorporated in Texas and commenced
Customer Service on June 18, 1971 with three Boeing
737 aircraft serving three Texas cities - Dallas,
Houston, and San Antonio.
 Company History ...
19 Company is incorporated as Air Southwest Co.
67
19 Airline launches first route, connecting Dallas,
71 Houston, and San Antonio
19 SWA posts first profit and begins RUSH cargo service
73
19 Southwest goes public on the American Stock
75 Exchange
19 Company is renamed Southwest Airlines Co.
76
19 Shares migrate to the New York Stock Exchange
77
19 Herb Kelleher becomes Southwest's outspoken new
78 chairman
19 SWA flies outside Texas to New Orleans
79
 Company History ...
19 Kelleher is named company president and CEO
81
19 SWA begins flights to West Coast
82
19 Revenues exceed $1 billion, making SWA a major
90 airline
19 Morris Air and Arizona One are acquired
94
19 Online booking site is launched
96
20 SWABIZ corporate booking tool is introduced
00
20 SWA enters first ever code share arrangement, with
05 ATA Airlines
 VISION & mission ...
Our
Vision Dedication to the highest quality of
Customer Service delivered with a
sense of warmth, friendliness,
individual pride, and Company Spirit
Our
provide safe and comfortable air transportation
Mission in commuter and short-haul markets, from
close-in airports, at prices competitive with
automobiles and buses and to involve
customers and employees in the product and
the process, making the airline a fun, profitable
and quality experience.
 Company Values ...
LUV
•Code word for treating individuals, employees, custome
•Dignity, respect and caring loving attitude.
•Appeared on banners and posters at company facilities

Core
Values
Fun
•Entertaining behavior of employees in performing their j
•The ongoing pranks and jokes.
•Frequent company-sponsored parties and celebrations.
> charity benefit games, chili cook-offs, Halloween parti
 Company Culture ...
♥ Emphasis on Value of People
Keep Employees Happy –
then they will keep customers happy
♥ Colorful personalities
Employees are friendly, creating unique love based
♥ atmosphere
“Now There’s Somebody Else Up There Who
Loves You”
Airport: Dallas Love Field Route: Love Triangle
Planes: Love Birds
Drinks: Love Potion
"Culture Peanuts:
is the glue that holds our organizationLove Bites
together. It encompasses beliefs,
Coupon: Love Ticket
expectations, norms, rituals, communication patterns, symbols, heroes, and
reward structures. Culture is not about magic formulas and secret plans; it is a
combination of a thousand things."
 Business Description ...
Business
Segment
Service in markets with of frequent, conveniently timed flights
and low fares.
♥ Business travelers who more time-sensitive than price-
sensitive and wanted weekday flights at times suitable for
conducting business.
♥ Price-sensitive leisure travelers who wanted lower fares and
had more flexibility about when to fly.
Product/Servic
es
♥ Short haul city pairs, providing single-class air transportation
which targets the business commuter as well as leisure
travelers
♥ Customers are able to make flight, car, hotel, cruise, and
 Business Description ...
Geographical Segmentation
Southwest flies to 62 cities in 32 states in America
Albany Columbus Indianapolis Midland/Odessa Philadelphia San Diego

Albuquerque Corpus Christi Long Island Nashville Phoenix San Jose

Amarillo Dallas (Love Field) Jackson New Orleans Pittsburgh Seattle/Tacoma

Austin Denver Jacksonville Norfolk Portland Spokane

Baltimore/Washington Detroit (Metro) Kansas City North Virginia (Dulles) Providence Tampa

Birmingham El Paso Las Vegas Oakland Raleigh-Durham Tucson

Boise Ft. Lauderdale/Hollywood Little Rock Oklahoma City Reno Tulsa

Buffalo Ft. Myers/Naples Los Angeles (LAX) Omaha Sacramento West Palm Beach

Burbank Harlingen/South Padre Island Louisville Ontario St. Louis

Chicago (Midway) Hartford/Springfield Lubbock Orange County Salt Lake City

Cleveland Houston (Hobby) Manchester Orlando San Antonio

In selecting cities, Southwest looked for city pairs that could gener
substantial amounts of both business and leisure traffic.
 Business Description ...
Route Map
 Building
Capable Organization
...

Staffing the Organization

Southwest’s
Core Competencies and
Capability
Competitive Capabilities

Matching the Organization

Structure to Strategy
 Staffing ...
“Employee come first and Customers come
second”
Putting Together a Strong Management
♥Team
80 to 90% of Southwest’s supervisory positions were filled
internally
♥ Developing leadership and communication skills for low
level management
♥ Up and Coming Leaders received training in every
Recruiting,
departmentsScreening, andperiod
over sixth-month Hiring
♥ Hired employee for attitude and trained them for skills
♥ Analyzed each job category to determine the specific
behaviors, knowledge, and motivations that job holders
needed and with the desired traits
♥ A trait common to all job categories was teamwork
 Core Competencies &
Competitive Capabilities ...
Developing a set of competencies and
capabilities
Low Operating Cost
♥ Operate one type of aircraft.
♥ Make reservations and purchase tickets at the company’s
website.
♥ Tried to steer clear of congested airports, stressing instead
serving airports relatively near major metropolitan areas and
in medium-sized cities.
♥ Using point-to-point scheduling of flights.
♥ There is no reserved seat for each passenger.
♥ No first class section, no fancy clubs at terminal and no
meals.
 Core Competencies &
Competitive Capabilities ...
Developing a set of competencies and
capabilities (cont.)
Focus on Customer & Customer
Satisfaction
♥ Make sure passengers had a positive, fun flying experience.
♥ Presenting a happy face to passengers and displaying a fun
loving attitude.
♥ Complaint letters were seen as learning opportunities for
employees and reasons to consider making adjustments
 Core Competencies &
Competitive Capabilities ...
Updating and revising this set as external
conditions and strategy change
♥ Gradual expansion into new geographic markets.
♥ Adding flights in areas where rivals were cutting back
service.
♥ An attractive frequent flier program.
♥ Adding longer nonstop flights to the route system.
♥ Putting strong emphasis on safety, high-quality
maintenance, and reliable operations.
 Core Competencies &
Competitive Capabilities ...
Training and retraining employees as needed to
maintain skill-based competencies
♥ Designed and conducted by Southwest’s University for
People
♥ Courses for new recruits , employees, and leadership
training program for both new and experienced managers
♥ Leadership course emphasized a management style based
on coaching and courage, rather than supervising or
enforcing rules and regulations
♥ Courses on safety, communications, stress management,
career development, performance appraisal, decision
making, and employee relations
♥ Orientation program included videos on Southwest’s history,
 Matching the
Organization
structure...
Designing an organization structure that facilitates
good strategy execution
♥ There were only four layers of management between a
frontline supervisor and the CEO
Deciding how much decision making authority to
push down to lower-level managers and front line
♥ Decentralized organization structures
employees
♥ Employee-led initiatives were common
♥ Employees have substantial authority and decision-making
power
♥ Candid meetings of frontline employees and managers
♥ Managers were expected to spend at least one-third of their
time out of the office, walking around the facilities under their
supervision, observing firsthand what was going on, listening
 SWOT Analysis ...
Strengths Weakness
♥ Low price tickets o Doesn’t serve international flights
♥ Low operating costs o One type of airplane
♥ Good customer service
♥ High frequency service
♥ Productive pilots & ground crews
Opportunities Threats
♥ Ability to add scheduled flights
o Big companies emulate Southwest's
♥ Low prices enable market share low cost model
growth o Difficulty securing new gates at
existing airports
 Five Forces Analysis ...
Substitute Products
(train, bus)

Low

Suppliers Rivalry
Supplier’s Customer’s Customers
(fuel, snacks, bargaining
among Competitor bargaining
beverages) power (High) power
LOW MEDIUM

Low

Potential New Entrants

 Market Share ...
Year 2006 : Market Share
 Financial
Performance...
Financial Summary
(In millions, except EPS)
2001 2002 2003 2004 2005
Revenues 7,584 6,530 5,937 5,522 5,555
Operating Expenses 6,764 5,976 5,454 5,105 4,924
Operating Income 820 554 483 417 631
Net Income 548 313 442 241 511
EPS 0.70 0.40 0.56 0.31 0.67

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0
2001 2002 2003 2004 2005
Revenues Operating Expens es
Operating Incom e Net Incom e
 Financial
Performance...
Stock Chart
 9/11 Black September
...
♥ September 11, 2001, terrorists attacked the World Trade
Center and the Pentagon, shook the whole country.
♥ 20% falloff in airline traffic in the fourth quarter of 2001
♥ Unprecedented three-day shutdown of flights, the sudden
erosion of passenger traffic, and strict new security
measures threw major airlines into a financial crunch of huge
proportions and triggered a struggle to revamp flight
schedules and respond to sharply lower passenger travel.
♥ Investor worries about almost empty flights, higher costs
from added security measures, and a clouded financial
future for the whole airline industry caused airline stock
prices to plunge.
 9/11 Impacts ...
Airline Industry Southwest Airlines
The number of flights were No flights were cut
cut by around 20 percent
Employees laid off no employees were laid off
Temporary freeze on hiring until
The delivery of new aircraft Jan 2002 a revised delivery
Negotiated
on order deferred or schedule for the 132 Boeing 737
cancelled
Speculation on how much to jets Fareon order
sales in January, March,
cut fares to induce April, July, August, October and
passenger to fly and on low December 2002
long
Manytraffic might to
scrambled stay
institute a Many scrambled to institute a
depressed
host of security measures host of security measures
 Conclusion ...
♥ To reduce their losses, the airline industry cut the
number of flights by 20% and laid off 16% of their
workforces.
♥ One airline had its own unique approach to the crisis.
Southwest avoided layoffs (no-layoff policy) and stuck
to its mission of caring for its employees. It was felt that
avoiding layoffs in the face of a dramatic decline in
demand would jeopardize short-term prospects.
♥ "It's part of our culture. We've always said we'll do
whatever we can to take care of our people. That's
what we've tried to do.“
♥ Southwest Airlines was able to operate their business
 Future Improvements
...
♥ It is essential for Southwest Airlines to expand on their
existing achievements.
♥ Better serve customers by improving their routing
system.
♥ Offering enhanced accessibility and minimizing delays.
Key People of SWA...
 Barry, Cynthia, Dedy,
Fitrie,
Indah, Made, Novita,
Rival

Dedicated to the fallen victims of 9/11, 5

years ago September 11, 2006