Southwest Airlines in 2003

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Introduction

In early 2001, Southwest Airlines, generally considered to be America's best managed airline, had a market capitalization of $14 billion which was bigger than those of major US airlines, American, United and Continental combined1. In 2002, Southwest's market capitalisation declined, but it still remained more than that of all the other major US airlines combined. Since 1973, the Dallas based airline had made profits without a break. This was an astounding feat in a difficult industry plagued by price wars, recessions, oil crisis and most recently the WTC attack. Indeed, Southwest was the only US airline to report a profit in the difficult third quarter of 2001.

Southwest was the undisputed cost leader in the US airline industry. It had cut out frills, ran point-to-point mostly short haul flights, used a single model of aircraft and taken advantage of the Internet to cut ticketing costs. Comparable costs of competitors such as American were significantly higher. Many analysts considered this a highly commendable feat as in Southwest's short haul flights, planes tended to spend more time on the ground, and maintaining high capital and labour productivity was difficult.

Many airlines had tried to imitate Southwest's business model but failed. According to Jim Parker² CEO of Southwest since June 2001, "There are a lot of people who said they are going to duplicate what Southwest does, but it's always Southwest with improvements. And the improvements haven't proven to be successful."...

Excerpts >>

1] Fortune, 28th May 2001.

2] Forbes, 8th July 2002.

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