Thursday, June 18, 2015
I. Southwest Airlines 2002: An Industry Under Siege
A. As Colleen Barrett, President and chief operating officer, put it at one gathering of the top management team, "Recent events have made it increasingly difficult to live up to the promise to customers in our ads that 'You are now free to move about the country.'"
B. Changes in the airline operating environment after the terrorist attacks of September 11, 2001 were thought by some on Southwest's management team to make it more difficult for the airline to maintain its distinctive competitive position.
II. The Southwest Story
A. Southwest Airlines was founded in 1967 by Rollin King and Herb Kelleher in response to a need for increased capacity on major travel routes between major Texas cities.
B. The Founding Strategy
1. Because federal regulation of the airline industry made it difficult to start an airline providing interstate service, Southwest's founders decided to create an intrastate carrier connecting Dallas, Houston, and San Antonio, Texas, roughly an hour's flying time apart from one another.
2. Their strategy was centered around costs low enough to enable Southwest to establish fares below the cost of driving a vehicle over the same route.
3. Based at Love Field in Dallas and with a need to get attention, the airline's new president, Lamar Muse, adopted the "love" theme in executing its strategy. As a result, drinks served on board were called "love potions," ticket machines were called "love machines," and cabin "hostesses" (there were no males at that time) were selected for their striking appearance and dressed in suits with "hot pants" and boots (the fashion rage at the time).
4. The hostesses were featured in what today would be called highly sexist ads extolling the distinctive features of the airline, such as stewardesses with seductive voices intoning "what you get at Southwest is me."
5. Southwest's point-to-point service enabled it to achieve high levels of on-time service. Its frequent departures enabled passengers to catch a later flight if they happened to miss one, a feature valued by frequent business fliers to whom Southwest hoped to cater. And its selection of older, less congested airports located more conveniently for business travelers allowed Southwest to achieve faster turnaround times at lower costs.
6. Early union contract job descriptions were negotiated with the open-ended clause "and whatever else might be needed to perform the service," because the turnaround time for just four planes and three cities was 15 minutes, a practice that remained in succeeding years.
7. All of this was done with an emphasis on fun for employees and travelers. Ground and in-flight personnel were encouraged to be creative in the way they delivered required announcements to passengers. Holidays were celebrated with costumers and giveaways.
C. Competitive Response
1. Southwest's principal competitors, Braniff International Airways and Trans Texas Airways (later Texas International Airlines), responded immediately. The lobbied courts to get Southwest to abandon Love Field and move to Dallas-Fort Worth International Airport. Southwest's competitors initiated low-price fare "sales" intended to make it difficult for Southwest to get a foothold in the market. They also asked the Texas courts to enjoin issuance of Southwest's intrastate operating certificate. Southwest's competitors failed on all three initiatives.
2. Braniff International intended to undercut and undersell Southwest's ticket sales for 60 days called the 60-day "half-price sale." Southwest countered Braniff International's attempt to undercut and undersell them and forced Braniff to discontinue the sale within days of the sale beginning.
D. Southwest's Takeoff
1. Shortly after the Airline Deregulation Act of 1978, a policy was adopted that, in spite of expansion…