1966 - Rollin King proposed the business plan of southwest airlines over cock tails to Herb Kelleher. 1971 - After five years of planning, Southwest began flying between Houston, Dallas and San Antonio. 1972 - Southwest was forced to sell one of its four planes to meet payroll 1973 - Southwest has its first profitable year, The first of 36 straight. 1978 - Herb Kelleher becomes interim CEO for several months. 1979 - Southwest begins services in New Orleans until Congress deregulated the airline industry that it couldn’t fly outside of Texas the previous year. 1982 - Southwest expands to California 1985 -Southwest begins service in Chicago’s Midway Airport. Buys Muse Air, which was a competitor. 1989 -Southwest annual revenue passes 1 billion dollars!! 1993 -Southwest expands the Baltimore- Washington international Airport. Acquires another competitor Morris Air. 1996 - Southwest expands to Florida 2001 - Kelleher steps down as CEO, but remains chairman. He was replaced by James Parker. Kelleher’s former legal assistant Colleen Barrett was named president.
Leadership Herb Kelleher, CEO Southwest Airlines Herb Kelleher is an outrageous, off-the-wall CEO that has built a unique organization and has been extremely successful in a very competitive market. Kelleher has an unorthodox style when compared to CEO's of other major corporations. This style is reflected in his organization's style. Herb Kelleher's leadership style is the opposite of the many autocratic leaders that have thrived in business for centuries. He does not "rule" over his employees but rather, rules with his employees. Kelleher does not contend that he is the only visionary at Southwest Airlines. He feels that anyone can make leadership decisions as long as they have experienced the pertinent situation. Kelleher imposes this notion on all of his employees. He leads them to believe that they can be leaders also. Kelleher's organization, as described by him, is an upside-down pyramid. At the bottom, are the upper management personnel and at the top are the front line employees. Gary C. Kelly current CEO Gary C. Kelly emphasized how important caring for people. Kelly strives to balance three important areas of focus for the company: low cost, customer service and a focus on people. Kelly believes Communication is a key piece of being a leader. Example of one of Kelly leadership style: “Bags fly free “ is now a big part of the Southwest marketing campaign. Instead of using paid actors, Southwest utilizes its own employees for nationwide television and print commercials. Now that is one way to raise employee morale! Transformational leadership is to arouse the needs of the subordinates in accordance with the leader's own goals, the final result being performance beyond expectation. Kelly is a transformational leader. He does not control the relationship he has with his workers. He sees them as equals. Kelly knows that his workers know what the goals are that he needs accomplished at any given time. He helps them when they need it but most of the time just lets them work and do things at their own pace. Kelly also believes that a strong sense of self is important in a good leader. “You must fit with the team and the culture, but you must be yourself.”
One key fundamental difference in the Southwest Airlines' approach lies in its overall philosophy. The company truly believes it is 'in the customer service business -- it just happens to fly airplanes. An inability to address an emotional situation on the spot and to the satisfaction of the customer is key to driving long-term satisfaction and customer loyalty. Southwest customers are treated as friends and family. Customers receive birthday cards, customer service reps develop first-name relationships and customers are invited to company events. Southwest qualifies a customer service candidate for employment based on attitude, not experience. The company believes that you can teach a person how to deliver quality service, but the attitude must be brought to the job. HAVE FUN Aside from this focus, Southwest Airlines also made sure the job was fun. They knew if people were having fun on the job, they would be more apt to come to work with a great attitude and deliver great customer service. This was exemplified through airport games and activities when flights were delayed, putting customers at ease and creating an air of relaxation and fun instead of frustration and anger.
According to the Airline Quality Rating for 2011, Southwest Airlines had a customer complaint rate of.27 for every 100,000 customers in 2010, representing the top passenger satisfaction rating of all the airlines for: On-time performance Baggage handling Involuntary denied boarding’s. Southwest has continued the high rate for passenger satisfaction, holding steady from an industry best.21 for every 100,000 customers in 2009. Southwest is also currently involved in the acquisition of AirTran Airways, another airline with a history of positive performance and high customer satisfaction. The AirTran acquisition will allow it to increase its number of flights in the Washington DC market by developing a presence at Reagan National Airport, where none currently exists.
2003 20042005 2006200720082009201020112012 Revenue (USD Mil) 5,9376,5307,5849,0869,86111,02310,35012,10415,65 8 17,088 Net Income (USD Mil) 44231354849964517899459178421 Earnings Per Share (USD Mil).188.8.131.52.184.108.40.206.23.56 2011 note: Southwest bought AirTran for $1B and $500Mil in merger costs
P/E is a way to compare companies in the same sector/industry by taking the price of one share divided by its earnings per share over the past four quarters. Average P/E of the major airline industry is 14.6 LUV is 26.5 meaning that investors are willing to pay a premium and future expectations are high. Footnote *all numbers as of 4/30
STRENGTHS (Internal) Firm operating strategy Friendly staff Best Low Fare Carrier Strong brand image Highest domestic depart Growth (3.5%) WEAKNESSES (Internal) Declining profits and margins Limited to 57 cities domestically Single Producer Lowest number of morning flights Freight and Cargo is limited Non-Segmentation OPPORTUNITIES (External) International Expansion Longer Flights Customer Satisfaction U.S Market THREATS (External) Competition Regulation/ Restrictions High Unemployment/ Inflation Joint ventures Failure to meet Stakeholders needs
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