Southwest Airlines Christine Dao Katrina Elicagaray Kimberly Tran April Weir

Airline Regulation 1938 Civil Aeronautics Act Civil Aeronautics Authority (CAA) Its Mission

The Beginning… Founded in 1967 Founders were Rollin King, John Parker and Herb Kelleher

DAL SAN ANTONIO HOUSTON “Herb, let’s start an airline” and “Rollin, you’re crazy. Let’s do it!” The Napkin Concept

Mission The Mission of Southwest Airlines To Our Employees

Executives Headquarters in Dallas, Texas Current Leadership Herb Kelleher – Chairman of the Board and Chairman of the Executive Committee Jim Parker – Vice Chairman of the Board and CEO Colleen Barrett – President, COO, and Corporate Secretary

Top 3 Strengths Structure Operations Culture Beliefs Policies Innovation

Southwest vs. the Majors Debt Pricing Hub & Spoke Labor Costs Operations Understanding the Market Customer Service

Debt Major airlines –High debt –High daily losses –Low cash Southwest –Little debt –Low daily losses –High cash Major airlines include Alaska Air, America West, America Trans Air, American, Delta, Continental, Northwest and United. Not included is US Airways, which is bankrupt and no longer traded on the NYSE.

Airline Aftermath How the sector has performed since 9/11 Carrier Stock % Change Since 9/11* Earnings Comparison Q2 2001Q American-69%-$105 million -$465 million US Airways million-248 million Delta million-162 million Northwest million-93 million Continental-7642 million-35 million Southwest million85 million United million-341 million - America West million-10 million *As of Thursday, Sept. 5, **Excludes all charges. Source: Company reports, Baseline, TSC Research

Prices Competition Seat prices Operation costs –Fuel –Airport fees Hubs vs. surrounding airports

Hub & Spoke

Labor Costs Union vs. Non-Union –Salaries –Labor costs as a percentage of revenues –Employees per flight

Operations Maintenance Training Boarding procedures Airport Fees Plane design Idle time Food Service

Operating Costs

Understanding the Market Niche market –Long haul flights –Short haul flights Price sensitive High customer service needs

Customer Service The Belief The Policies The Results

The Belief “Southwest people believe that customer service involves more than an objective understanding of the customer’s need. It also means, …, “being attentive to the person behind the need, and responding to the person more than just responding to the need.” NUTS! Southwest Airlines’ Crazy Recipe for Business and Personal Success by Freiberg & Freiberg

The Policies Seating space Boarding procedures –Ticketing –Safety Timeliness of flights Amenities

The Results Best on-time service + Best baggage handling + Best customer Service = Triple Crown Award 5 Years Straight

Southwest Culture

Information Technology and Systems What Helps Keep Southwest on Top?

IT/IS Helps Business Strategy Deploy’s Enterprise Software PROS Revenue Mgmt. CALEB Technologies Corps CrewSolver Software I2 Service Inventory Management Computerized Reservation System RAPID CHECK-IN Automated boarding passes

Focused Cost Leadership High frequency, short hops Low fair strategy Cost-effective inventory management Efficient and cost-effective recruitment Unique, high level customer service

What Major airlines are doing to compete Cutting jobs Retiring older planes Streamlining routes In the future, closing hubs

Combating Competition Structurally competitive through Operations Successful in utilizing Information Technology and Information Systems Creating a culture of Innovation and Great Customer Service

Southwest Beating the Competition

Thank You