1 Southwest Airlines(2009) Outstanding Service at the Lowest Fares

2 Mission Statement (actual) The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Vision Statement (Proposed) At Southwest, we strive to be the new generation of flight transportation while providing luxury at a price anyone can afford.

3 Mission Statement ( expanded ) We are committed to quality service for the everyday person (1). Southwest provides air transportation to cities all around the United States (2, 3). We fly the most luxurious planes on the market with the latest technology money can buy (4). We competitively provide the lowest airfare price in search for the greatest advantage in todays busy world (5). We provide the highest standards of safety for all our customers while still offering a reasonable price (6, 7). A portion of our proceeds are donated to various charities throughout the United States (8). Since our first flight in 1971, our employees have been the vital asset in making Southwest the most recognized airline today (9).

4 Mission Statement Components 1. Customer 2. Product or services 3. Markets 4. Technology 5. Concern for survival, growth, profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees

5 Competitive Profile Matrix SouthWestAmericanUnited Critical Success FactorsWeightRatingWeighted Scor e RatingWeighted Score RatingWeighted Score Market Share Price competitiveness Financial Position Consumer Loyalty Advertising Management Security Precautions Organizational Structure Customer Service Total

6 EFE Matrix-Opportunities

7 EFE Matrix-Threats

8 Ratios (12/07)

9 Ratios (12/07) Continued

10 Ratios (12/07) Continued

11 Ratios (12/07) Continued

12 Ratios (12/07) Continued

13 Net Worth Analysis (Year-end 2007)

14 IFE Matrix-Strengths

15 IFE Matrix-Weaknesses

16 SWOT Analysis-Strengths

17 SWOT Analysis-Weaknesses

18 SWOT STRATEGIES-SO

19 SWOT STRATEGIES-WO Hire more part time workers (W1, O11). Add new technology to older planes in order to become up-to- date and accommodate the handicapped (W6, O8). With airline companies selling planes SW can purchase models similar to the 737, which could lead to better press if a problem with the 737 arises (W5, O2). Offer in flight meals for those who meet appropriate requirements based on points received from Visa card usage (W11, O6). Install televisions and satellite radio in planes for enhanced customer service (W10, O7). Provide higher quality and luxuries (first class) in some jets for customers willing to pay extra (W8, O9).

20 SWOT STRATEGIES-ST

21 SWOT STRATEGIES-WT Using the code share with ATA airlines begin offering flight to select areas outside the US including (Cozumel Mexico, Select Canada locations, Paris, London, etc.) Shorten the flight life span of the B737s in order maintain planes that are consistently up to date with technology. This will allow us to hedge any risk of negative problems arising with the 737s. Maintaining new equipment allows us to easily liquidate the assets when new items are needed to be purchased. Add new cities not flown to by Southwest such as Atlanta, Charlotte, Chicago, and New York

22 SPACE Matrix

23 SPACE Matrix

24 Grand Strategy Matrix

25 IE Matrix

26 QSPM-STRENGTHS

27 QSPM-WEAKNESSESS

28 QSPM-OPPORTUNITIES

29 QSPM-THREATS

30 RECOMMENDATIONS The QSPM strategies assessed adding 12 new planes to the fleet or retiring older planes. It is recommended Southwest add 12 new planes at a total cost of $500 million.

31 EPS/EBIT Analysis $ Amount Needed: 500M Stock Price: $13 Tax Rate: 35% Interest Rate: 7% # Shares Outstanding: 735M

32 Mission/Vision Give SW Customers the Freedom to Fly Low Fares Frequent Flights Friendliest Service in the Sky

33 Strategy to Date Low Cost, Low Fare High Frequency No Frills Almost No Interlining No Hubs, No International Point-to-Point Short-Haul Service Regional Service HQ in Texas

34 Strategy Success to Date I Net Income at $499.0 million in 2006 Passenger Revenues in 2006 at $9.086 Billion Many years of top airline performance re: on-time; complaints; and lost luggage 33 consecutive years of profit through 2006

35 Strategy Success to Date II Diluted EPS of $.61 in 2006 Rivals Delta & United near Bankruptcy Overall SW looks strong in 2007 despite the aftermath of 9/11 Long Term Debt at $2.887 billion in 2006

36 Internal Analysis: Strengths Low Cost Fast Turnaround Work Force commitment and flexibility Differentiation --not just low cost but better service (on time, no lost luggage,fewer complaints) Leader in Re-engineering Operational Simplicity

37 Internal Analysis: Weaknesses Low Economies of Scale (small relative to other majors, short routes) No Hub System No code sharing -- can sell only tickets from its own offices No Interlining No International Routes

38 Internal Analysis Financial Marketing Management Operations Information Technology

39 External Analysis: Opportunities Market Expansion: over 100 cities have asked Southwest to offer service Longer Flights International Expansion to Canada and Mexico

40 External Analysis: Threats Weak Demand New Rail Service (Dallas to Houston) Increased Competition -- if they lose their Love Field Restrictions Increased Regulation (noise) Dependence on Domestic Markets

41 External Analysis: Porters 5 Forces Entry of New Competitors: Unlikely Substitute Products: High Speed Rail, Video Conferencing Competition Among Existing Competitors: Strong Power of Suppliers: In 2007, Weak for Aircraft but Strong for Fuel Suppliers Power of Customers: Strong

42 External analysis Economics Demographics Environmental Legal …...

43 Strategy Alternatives Continue Present Strategy -- --Problem is limited growth Expand Geographically --Point-to-Point --serve other regions efficiently Expand Geographically --Major Hubs Remain Regional --through hubs Increased ticketing via internet

44 Should Southwest Code Share? PRO: Increase visibility and potential customers CON: Increase Costs

45 How Can High Worker Commitment and Productivity be Sustained? As Company Expands, New Workers Will Be Needed with Company Culture Transferred to them Reward System with Bonuses and Incentives but within Cost Controls

46 Management Depth Management will have to be extended to support expansion Kelleher, Kelly and Barrett are still the top trio (see p. 242)

47 Conclusion Southwest is a Benchmark Competitor - -Setting Industry Standards They have successfully expanded and continued to innovate -- e.g., ticketless travel, boarding pass download at home or office prior to going to the airport, friends fly free, use of underutilized airports, etc.

48 Recommendations Continued Gradual Expansion Maintain the characteristics that have enabled their success: Conservative Growth Cost Containment Commitment of Employees … …...

49 Update 2008 Results (from SW Website) operating revenues at $ Billion up 10% over 2007 Expansion continues with new service at San Francisco, planned service to New York Stock Price 2/9/09 = $7.18; 52 Week Range $16.77 to $6.56 Hedging on Fuel was successful as Fuel Prices rose but costly when they fell in late 2008.