Articles Tagged ‘Low fares’

Southwest Airlines: Quick Turn Arounds (Case Studies of Great Companies)

Thursday, June 12th, 2014

1. Overview

Modeling after the California intra-state airline, Pacific Southwest Airlines, entrepreneur Rollin King and lawyer Herb Kelleher started Southwest Airlines in 1967.

Southwest Airlines’ goal was to make life simpler for travelers who wished to travel the distances between Houston and Dallas-Fort Worth and San Antonio. The need was there, the Texas economy was booming, and the business model made eminent sense.

However, the existing entrenched power base was not willing to relinquish its control of the the Texas airline market uncontested. Kelleher suspected as much, and was determined to raise twice his initial figure of $250,000 venture capital, because of the likelihood of a prolonged fight to get Southwest off the ground. It turned out to be even more difficult a proposition than even Kelleher imagined.

Kelleher filed Southwest’s application to fly between Dallas, Houston, and San Antonio with the Texas Aeronautics Commission (TAC) on November 27th, 1967, and on February 20th, 1968, TAC approved the application. However, the day after TAC voted for approval, Braniff, Trans-Texas, and Continental successfully filed a restraining order to keep Southwest from flying, arguing that the markets were already saturated; the restraining order was upheld in the intermediate appellate court but was over-ruled in the Texas Supreme court.

Four years after its incorporation, Southwest was finally ready to fly. On June 18th, 1971, Southwest was finally off the ground, in spite of additional efforts by existing airlines to keep it grounded.

Southwest differentiated itself from the other airlines, especially in its excellent customer service, lower fares, and in its use of older, smaller, close-to-downtown airports which were more convenient for business travelers.

The key factors in the early years for Southwest’s success were:

1) Profitability
2) 10-minute turn-around
3) Steady growth rate
4) Low debt; low leveraging
5) Outstanding stock performance
6) Lowest fares
7) Market dominance
8 Most productive work force
9) Low turn-over
10) No furloughs
11) Highest customer service ratings
12) Cancels fewest flights
13) Best safety record
14) Youngest fleet
15) Most emulated

In 1978, airlines and the newer airports (shunned by Southwest) made their influence felt once again, this time through legislation, spear-headed by congressman James Wright. Ultimately, this legislation’s impact was gradually mooted.

Out of this early contentious history of Southwest Airlines came a fighting attitude of us vs. them, a spirited, passionate belief in the mission they represented which was giving people the “Freedom to Fly.” This was a unifying force for both employees and customers as Southwest made it possible for “the common man” to fly.

2. Focal Strategy: Key Metrics and the 10-minute turn-around

Out of necessity, Southwest mastered the capability of the 10-minute turn-around of their planes. In September of 1971, Southwest had four 737’s to cover all their routes. When a federal district court ruled that Southwest could not fly charters outside Texas, the fourth plane became a financial liability.

In order to service their routes with just three planes, it became necessary for quick turn-arounds. No one thought they could do 10-minute turn-arounds, but they did, enabling them to make do with just three planes. The quick turn-around became a strategy for economy, as well as on-time performance.

At the present time, metrics still play a large part in Southwest’s success and customer service excellence. The four key measures that Southwest Airlines tracks are:
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