Southwest Airlines Act II - An Airline in Trouble?


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Case Details:

Case Code : HROB061
Case Length : 13 Pages
Period : 2001 - 2004
Pub Date : 2004
Teaching Note :Not Available
Organization : Southwest Airlines
Industry : Aviation
Countries : USA

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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CEO Resigns Contd...

Southwest was the pioneer of low cost airlines (Refer Exhibit-I for features of low cost airlines). It was the first time in its history that the airline had experienced major labor problems.

Otherwise, although Southwest had the highest percentage of unionized employees in the industry (about 85 per cent of its employees belonged to unions), relations between the employees and the management were always positive and cooperative.

The company had also experienced only one strike since its launch in 1971.

Just before Parker's resignation, Southwest had announced that its second quarter profits for 2004 would fall below expectations by 54 per cent, although it was the 53rd profitable quarter in a row for the airline (Southwest was also the only airline in the industry to post profits every year since 1973.)

The fall in profits was assigned to increased labor costs and rising fuel prices. However, many analysts believed that the underlying reason behind all of Southwest's problems was that the culture, for which the airline was famed, was changing.

Background

In 1966, Kelleher (who was a lawyer) and Rollin King (King) a San Antonio entrepreneur who owned a small commuter air service conceptualized a low cost airline that would provide the best service with the lowest fares for short-haul, frequent-flying and point-to-point 'non-interlining'6 travelers. King's banker, John Parker, conducted the feasibility study for the project and declared that it had potential. The airline was initially called Air Southwest Co., but the name was changed in 1967 to Southwest Airlines Co.

The trio decided to commence operations in the state of Texas, connecting Houston, Dallas and San Antonio (which formed the 'Golden Triangle' of Texas).

These cities were growing rapidly, and were too far apart for travelers to commute conveniently by rail or road. With other carriers pricing their tickets very high, making them unaffordable to most Texans, Southwest sensed an attractive business opportunity.

Kelleher applied for the incorporation of the company in March 1967. On February 20, 1968, Southwest received permission from the Texas Aeronautics Commission (TAC) to operate across the three cities.

Immediately thereafter, the Trial court restrained the TAC's permission in response to a petition moved by other intrastate airline operators Braniff, Trans Texas, and Continental.

After an unsuccessful appeal to the State Court, Southwest obtained its certificate for operation after clearance from the Texas Supreme Court...

Excerpts >>

6] Southwest did not arrange connections with other airlines; passengers transported their own luggage to recheck themselves onto connecting airlines.

  

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