Southwest Airlines business model and operations

Southwest Airlines

The deregulation of the United States domestic civil aviation industry in 1978 saw airlines begin to compete freely. However, the capital-intensive nature of the business, along with undifferentiated products and services, has led to 120 airline bankruptcies since then. In the light of this context, Southwest's ability to compete is particularly interesting as it has not only continued to expand, but has been the only one to earn a profit every year since 1973 (Freiberg, 1998, p. 4-5).

Today, Southwest is the fourth largest major airline in America, flying more than 64 million passengers a year to 58 cities (Southwest Airlines, 2002). Southwest attributes its success to its unique business model of rock bottom fares, low costs, and outrageous customer service that entails getting passengers and their baggage to their destinations on time and ensuring that they have some fun along the way (Peters, 1998, p. xiv). This business model is the basis of the airline positioning itself as a low fare airline that is fun to fly.

Southwest does not assign seats on its flights in line with its business model of keeping its costs and fares low. Not assigning seats gives the airline the advantage of helping cut boarding time to twenty minutes and reducing costs by reducing ground time. The principle, here, being that lower unit costs per flight and higher revenues are achieved by increasing the number of hours that an aircraft flies (Freiberg, p. 82-82). Thus, the aforesaid and several other cost cutting measures have enabled Southwest to successfully occupy the position of a low fare airline. The airline fulfilled its second positioning dimension of 'the airline that is fun to fly' through developing the concept of 'luv.' Everything the airline does is seen to revolve around this concept, including the low fares and flight schedules it offers: "LUV is our stock exchange symbol, selected to represent our home at Dallas Love Field, as well as the theme of our employee and customer relationships." (Southwest Investor Relations)

Southwest's concept of 'luv' is used across its promotional media, and has been central to its advertising theme since 1971 (Freiberg, p.216). For example, a print ad promoting its high frequency flight schedules in 1971 was captioned "How do we love you? Let us count the ways." (Southwest, 2003) From 1971 to a January 20, 2004 press release that says, "Leap into Luv month.... Whether you need to surprise your sweetie with a weekend trip...fares are red hot and available only for a limited time," (Southwest, 2004) Southwest has consistently built on its 'luv' theme and reinforced its position as a fun, customer oriented airline.

However, the history of Southwest's 'luv' concept goes way beyond a mere advertising theme, extending as it does to its employee relations. In fact, Southwest believes that its employees are living advertisements for its message: "When people come in contact with Southwest's twenty-two thousand people, they experience the advertising." (Freiberg, 1998, p. 261) This corporate philosophy and Southwest's success in implementing it, as a culture, is reflected in the airline's hiring policy, employee team work with staff pitching in wherever required, and in outrageous customer service. The company is known to hire for attitude and a sense of humor, believing that training will provide the skills. As a result, Southwest is truly able to deliver on its promise of a fun flying experience and thereafter advertise it. For example, take the ad, which reads "We've been telling corny jokes for 25 years, and so far no one has gotten up and left." (Freiberg, 1998, p. 64-73) The airline's success in this aspect of its strategy is also reflected in the fact that it has won the coveted Triple Crown award for Best On-time Record, Best Baggage Handling, and Fewest Customer Complaints more than thirty times in its history so far. Further, the airline is very clever in the manner in which it uses its awards to promote itself. Besides conventional media, Southwest's innovative and outrageous character is reflected by the fact that it has branded one of its aircraft, 'Triple Crown One,' dedicating it to its employees (Southwest, 2002).

Southwest's differentiation extends to its frequent flier program as well. Branded Rapid Rewards, Southwest's frequent flier program is based on number of trips and not miles, and further characterized by not limiting seats for redemption, few blackout dates, and the facility off earning credits through program partners (Southwest Rapid Rewards). Given its superior features, Southwest is able to advertise its Rapid Rewards program with ads such as "Earning a free ticket...is easier than earning a free cup of coffee." (Southwest, 2003)