Discussion Questions

groups (A, B, C) and a number when they check in. The number refers to where they stand in line at the gate. Group A boards first, and once on board, passengers may sit anywhere they like.

Southwest grows by entering new markets other air- lines overprice and underserve. The company believes it can bring fares down by one-third to one-half whenever it enters a new market, and it expands every market it serves by making flying affordable to people who could not afford it before. Southwest currently serves 68 cities in 35 states, usually secondary cities with smaller airports that have lower gate fees and less congestion —another factor that leads to faster turnaround and lower fares.

Another unique cost savings strategy is Southwest's decision to operate Boeing 737s for all its flights. This simplifies the training process for pilots, flight attendants, and mechanics, and management can substitute aircraft, reschedule flight crews, or transfer mechanics quickly.

Jet fuel is an airline's biggest expense. According to the industry's trade group. Air Transport Association, jet fuel now accounts for 40 percent of an airplane ticket versus 15 percent just eight years ago. Southwest's biggest cost savings technique and competitive advan- tage has long been its program to hedge fuel prices by purchasing options years in advance. Many of its long- term contracts allow the airline to purchase fuel at $51 per barrel, a significant savings especially during the oil shocks of the 2000s that drove oil past $100 per barrel. Analysts estimate that Southwest has saved more than $2 billion with fuel hedging.

Because lighter planes use less fuel. Southwest rriakeis its planes lighter by, for instance, power-washing their jet engines to remove dirt each night. It carries less water for bathrooms and has replaced its seats with lighter models. Southwest consumes approximately 1.5 billion gallons of jet fuel each year so even/ minor change adds up. The airline estimates that these changes saved $1.6 million in fuel costs over just three months.

Southwest has pioneered services and programs such as same-day freight service, senior discounts. Fun Fares, and Ticketless Travel. It was the first airline with a Web site, the first to deliver live updates on ticket deals, and the first to post a blog. Despite its reputation for low fares and no-frills service. Southwest wins the hearts of customers. It consistently ranks at the top of lists of

customer service for airlines and receives the lowest ratio of complaints per passenger.

Southwest has been ranked by Fortune magazine as the United States' most admired airline since 1997, the fifth-most admired corporation in 2007, and one of the top five best places to work. Its financial results also shine: the company has been profitable for 37 straight years. It has been the only airline to report profits every quarter since September 11, 2001, and one of the few with no layoffs amid a travel slump created by the slow economy and the threat of terrorism.

Although the hot pants are long gone, the LUVing spirit remains at the heart of Southwest. The company's stock symbol on the NYSE is LUV, and red hearts can be found across the company. These symbols embody the Southwest spirit of employees "caring about themselves, each other, and Southwest's customers." "Our fares can be matched; our airplanes and routes can be copied. But we pride ourselves on our customer service," said Sherry Phelps, director of corporate employment. That's why Southwest looks for and hires people who generate en- thusiasm. In fact, having a sense of humor is a selection criterion it uses for hiring. As one employee explained, "We can train you to do any job, but we can't give you the right spirit." And the feeling is reciprocated. When Southwest needed to close reservation centers in three cities in 2004, it didn't fire a single employee but rather paid for relocation and commuting expenses.

Questions

1. Southwest has mastered the low-price model and has the financial results to prove it. Why don't the other airlines copy Southwest's model?

2. What risks does Southwest face? Can it continue to thrive as a low-cost airline when tough economic times hit?

Sources Barney Gimbel, "Southwest's New Flight Plan," Fortune, May 16, 2005, pp. 93-98; Melanie Trottman, "Destination: Philadelphia," Wall Street Journal, May 4, 2004; Andy Serwer, "Southwest Airlines: The Hottest Thing in the Sky," Fortune, March 8, 2004; Colleen Barrett, "Fasten Your Seat Belts," Adweek, January 26, 2004, p. 17; Jeff Bailey "Southwest Airlines Gains Advantage by Hedging on Long-Term Oil Contracts." New York Times, November 28, 2007; Michelle Maynard, "To Save Fucl, Airlines Find No Speck Too Small," New York Times, June 11, 2008; Daniel B. Honigan, "Fred Taylor Leads Southwest Airlines' Customers to New Heights of Customer Satisfaction," Marketing News, May 1, 2008, pp. 24-26; Matthew Malone, "In for a Landing," Conde Nasi Portfolio, August 2008, pp. 91-93; www.southwest.com.