Business model of Southwest Airlines
The low cost model has become so ubiquitous today that it’s quite easy to f0rget that, when Southwest airlines set up in 1971, its business model was quite revolutionary. This was just two years after Concorde had come into existence, and talk of the time was of quick flights for important business people prepared to pay a high price. The two oil shocks of the 1970s, and changes in consumer tastes had a huge impact on this and, no doubt had a great, positive impact on the business model set up by Southwest Airlines.
Management, strategy, corporate culture, corporate governance, leadership, high-performance relationship, market leadership, low cost airlines, customer service.
The Southwest Airlines way sets out just how the company has made itself into one of the world’s most profitable companies, and for a time, it was even the largest carrier until the recent spate of mergers in the airline industry in the United States. The business model has become well adapted today. The company only uses the same Boeing 737 aircraft, and they have a whole number of ways in which they reduce their costs, such as not having pre-booked flights and pre-booked seats, and taking away many of the extras that become quite expensive within the airline industry. The model has been hugely successful. Southwest Airlines was profitable for the first thirty-one years of its existence, which wasn’t seen in any other airline industry. This is particularly impressive, given the fact that airlines in general struggle to make profits. Today, the company employs 46, 000 people and operates 3, 400 flights per day.
The list of achievements by the company is fairly impressive. It is the only airline to have won the industry triple crown, for the fewest delays, fewest complaints, and fewest mishandled baggage. For years (not in individual months, but in entire years), from 1992 to 1996, its annual growth rate over the first three decades was 10-15%. In fact, it was so successful that there is even within the industry what is called the “Southwest Effect”: that is, there is a change in passenger volumes and fares as soon as Southwest Airlines enters the industry.