This document contains a case strategy for Southwest Airlines. It provides an overview of the macro market for U.S. domestic airlines following deregulation in 1978. It summarizes Southwest's mission, history of growth, key facts about operations and financials. It also includes analyses of Southwest's industry using PEST, Porter's Five Forces, and SWOT frameworks. Recommendations are provided regarding strategy, sales/marketing, costs, IT/innovation, organization, and corporate social responsibility.

1. SWA Case Strategy –
International Management,
Veronika V. Dudkina
SMBS
at Georgetown University, Washington, USA
February 11th, 2015

2. MACRO MARKET
for U.S. domestic airlines
• Deregulation in 1978
• Crisis (Fuel 1979, Air traffic controllers strike 1981)
More than 150 carriers collapsed into bankruptcy (8 out of 11 of the biggest carriers)
The 3 big carriers – Delta, United and American – did 80% of the domestic air traffic and
67% of the transatlantic business
• This resulted in a price cut up to 50%
• This price cut resulted in an increased demand
• Despite this increase total financial losses > 50 mio $ (2001 – 2011)
But Southwest did steadily grow
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 22

3. MARKET ANALYSIS
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 23
• New airlines did offer the flight routes, the major carriers neglected
• Steadily growing customer demand
• Very competitive business – 6 major competitors
• Complex, instable and volatile market
• Different external factors not possible to be influenced by airlines
1) Fuel costs
2) Legal requirements
3) policy

4. PEST - ANALYSIS
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015
4
Economical
• Jet fuel increase
• Economic downturn
• World wide recession
• Demand increase
because LCC
Technological
• Growth of technology leads
to airlines technology (fuel,
system, IT, vehicle, etc)
growth (cutting costs,
innovation, ecommerce,
convenience)
Political & Legal
• Safety Restrictions after 9/11
• Governmental Regulations (FAA
– possible: CO2 regulation)
• Legal battles against rivals
• Tax increase
• Terrorist attack
Social
• Citizens could live more
“saving minded” after
a new downturn
• Change in social view on
environmental damage
• Dissatisfaction of
Customers due to Safety
Checks, f.e.
PEST
Analysis
• New technical possibilities can have a
similar customer value for business
clients as travelling
• Information Security Issues

5. Southwest Airlines’ Mission
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015
5
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.

6. KEY FACTS (History)
What stand SOUTHWEST AIRLINES for
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 26
• Created a new market and business model
• “Fight to Fly” legal battles from 1966 into 1971
• Southwest spirit
• Low cost provider
• high quality and customer satisfaction
• Profitable over the past 40 years
• LEAN processes
• Innovation
• CSR

7. SOUTHWEST
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 27
• Operating Revenue 2014: 13,977 Billion Dollar
• Net Income 2014: 946,2 Million Dollar
Net Income
in Million Dollar
Operating Revenue
in Billion Dollar

8. KEY FACTS
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 28
• Taking overs by Southwest Airlines
• 1985: SWA took over Muse Air/TranStar Airlines
• 1993: SWA took over over Morris Air (founder Neeleman afterwards
founded JetBlue Airlines – one of the biggest competitors of
southwest airlines)
• 2010: took over AirTran (taking over completed by 2014)

9. Only 1 AIRPLANE TYPE
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 29
• Number of airplanes:
1971 - starting with 3
2005 - 200
2015 - 679
287 airplanes
are already ordered
• Number of passengers/year:
1973: 0.5 mio
2007: > 100 mio
2012: 134 mio

10. KEY FACTS
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 210
Southwest Airlines Route Map

11. Competitive Rivalry
HIGH (by now)
Competitors are the 7
major carriers plus the
emerging LCC with
similar portfolios
Threat of Substitutions
LOW
There are substitutions like
car, train, bus, but as long
as there are no high-speed
long-haul trains there is low
danger
Threat of new entrants
MODERATE
Business Model is copy
able easy - but
Leadership, Brand,
Company Spirit not Supplier
Power
HIGH
- High
dependability
from IT, their
warranty and
security
- Strong
dependency on
Boeing
Buyer Power
HIGH
- Easy
exchangeabilit
y for
customers
- Each LCC
offers similar
services
PORTER - FIVE FORCES
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 211

12. SWA created a New Market –
Blue Ocean Strategy
2
• Competition to beat in saturated market
=> DESTRUCTIVE COMPETITION
• Exploit existing demand
• Make the value/cost trade-off
• Alignment of the whole company‘s activities
either to the strategy of differentiation OR
low cost.
• Create a new market
=> NO COMPETITION
• Creation of new demand
• Break the value / cost trade-off
• Align the whole system of a
company‘s activities in pursuit
of differentiation AND low cost.
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015
12

13. STRATEGY CANVAS
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 2
The speed of a plane at the price of
a car – whenever you need it.
13

14. SWOT – Strenghts and Weaknesses
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015
S W
• 15 minutes turnaround time
• Good track-record, financially stable
• Customer service & satisfaction
• Company spirit and staff productivity
• Safety & quality
• Online First-Mover, Customer
Self Services Pioneer (Ticketless)
• Cost and process advantages
• Short distance flights at low fares
• Operating just Boeing 737s
• Lean and agile Organization
• Point-to-point scheduling
• Declining RPM
• Load factor declines
• Service quality did sink
• Operating costs are rising
• Only domestic flights
• Delays (take off and arrival)
• Dependence on one airplane
manufacturer
• High salaries of employees
• No offer segmentation (classes)
• Not member of an alliance
• AirTran Integration (717s)
• Growth into congested markets
14

15. SWOT – Opportunities & Threats
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015
O T
• Growth from AirTran Integration
• Near- international destinations
• Declining fuel costs (no doubt
temporary)
• Rising labor cost
• Fuel price volatility
• New LCC that copy SWA
=> Diminishing advantage
• Terrorism advantage
• Government regulations (CO2)
• Tax system
• US economic condition
• Major airline competitors are
catching up regarding efficiency
and innovation
15

16. RECOMMENDATIONS
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 2
§ Strategy
§ Sales & marketing
§ Utilization optimization
§ IT & innovation
§ Cost reduction
§ Organization & culture
§ Corporate Social Responsibility
16

17. Recommendations - Strategy
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 2
• Don’t change your LCC strategy and public perception. You are the
paradigm for your competitors and they are coming closer.
• => You have to innovate and improve to maintain your competitve
advantage and to create barriers to entry
• Expand geographically & evaluate internationalization
• Open routes
• Acquire a competitor
• Join an alliance
• Since SWA is the leader of LCCs, you
have to keep prices as low as possible to
stimulate demands
17

18. Recommendations –
Sales and utilization
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 2
• Evaluate the degree of capacity utilization of every flight route and the closing of non-
lucrative ones
• Increase the carrying capacity and possible flight range (Boeing 737-800 )
• Fare promotions to people, that never flew with SWA to maximize load, to wow them so that
you get a new regular customer
• Build an eco-system to offer (partner) products like rental cars, accommodations, etc. to
increase ancillary revenues.
(We assume, You earn more commission for a accommodation than you earn with a flight)
• => Your most valuable asset is your customer and his trust in you and your offerings.
The flight service is just the need for you to stay in contact (the blood-circuit of this business
model) with your customer and to enthuse them perpetually.
• In case, costs are further rising, think about baggage fees (in last instance).
18

19. Recommendations - Costs
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 2
• Cut your costs! (without losing quality)
• Make your fleet more efficient (737MAX and 737 NG)
• Do a cost evaluation for every relevant service and product you procure in an
adequate way.
• Do an evaluation of your procurement process. Implement an eprocurement
system where suppliers can underbid each other in reverse auctions
• Evaluate shareparts-pooling with airlines (alliance ?)
• Continuously improve your supply chain and relevant business processes.
19

20. Recommendations - IT
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 2
• Streamline and automate in order to both aid in cost cutting and maintain the competitve
advantage
• Use more IT to achieve operational efficiencies (ITIL, COBIT, ISO 20000)
• Use IT and new technology as business enabler. Stay the fore-runner in innovative
sellsides and communication to your customers.
• Use new technology as enabler for innovative features (multimedia-systems in aircrafts,
seats, WIFI, E-Commerce, Apps, …)
• Keyword Big Data: Use every legal way to
analyze your customer data and send clients
personalized offerings to maximize sale at
minimum costs.
20

21. Recommendations - Organization
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 2
• Keep you’re your organization and
processes lean and simple, start a
Continuous Improvement process
• We heard that the integration of
AirTran is ongoing well.
Based on our experience an
integrative change program after an
acquisition takes years.
• IT integration
• People and culture integration
• Use external
consultants and
mediators
21

22. Recommendations - CSR & Ecology
Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015 2
• Stay focused on
• Customer Satisfaction
• Company spirit
• Getting the best
employees
• Secure your customer data
• Keep up the highest
possible quality (ISO9000,
ISO20000, Six Sigma)
• Southwest Airlines – For
those who luv nature
22

23. Veronika V. Dudkina for SMBS
at Georgetown University, Washington, USA
February 11th, 2015
Thank you for
your attention!