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GARRISON KELLER MOVING YOU FORWARD 5567 Beechmont Avenue • Cincinnati, OH 45276 • (513) 998-3000 • jgarrison@ SOUTHWEST AIRLINES CASE STUDY I. COMPANY OVERVIEW Southwest Airlines Co. (“Southwest”) is a major U.S. airline that primarily provides short haul, high-frequency, point-to-point, low-fare service. Southwest was incorporated in Texas and commenced operations on June 18, 1971 with three Boeing 737 aircraft serving three Texas citiesDallas, Houston, and San Antonio. Today Southwest operates nearly 400 Boeing 737 aircraft to 59 U.S. cities. Southwest has the lowest operating cost structure in the domestic airline industry and consistently offers the lowest and simplest fares. Southwest also has one of the best overall customer service records. LUV is Southwest’s NYSE symbol, selected to represent the company’s home at Dallas Love Field, as well as the theme of Southwest’s employee and customer relationships (Southwest Airlines Investor Relations statement at . 10/10/04). For fiscal 2003 Southwest Airlines achieved revenues totaling $5,937 million, an increase of 7.5% on 2002 revenues of $5,741 million. The company’s business is divided into three distinct areas: Passengers, Freight, and Other, which respectively accounted for 96.7%, 1.6%, and 1.7% of 2003 revenues (, 10/10/04). II. CURRENT SITUATION A. Current Performance Overall, Southwest’s performance in recent years has been outstanding. The company’s ROI has been steadily increasing, and Southwest has consistently ranked first in market share in 80-90 percent of its top 100 city-pair routes. Its airline industry market share in 2000 was 9.4%. despite being in an industry that is characterized by “vulnerability to economic cycles and big swings in bottom-line performance,” Southwest has been profitable every year since 1973. It posted a growth rate of 1.0% in 2000, up