Overview: Southwest Airlines

Teresa Cederholm - Author

Jul. 21 2014, Published 10:49 a.m. ET

Southwest Airlines

Southwest Airlines, a leading U.S. low cost airline started operations in 1971. It had three Boeing 737 aircraft that served three Texas cities. Today, the company serves 96 destinations in 41 states in U.S. After the acquisition of AirTran Airways in 2011, it launched international service in July, 2014, to three Caribbean destinations—Aruba, Jamaica, and the Bahamas. As a pioneer in low cost air travel, Southwest has successfully brought down air fares through its short route point-to-point business model, “no-frills” service, single flight strategy, and highly productive employees. The company’s business model contrasts with the hub and spoke model and multiple fleet strategies adopted by all of its legacy competitors. According to the 2013 Business Travel News (or BTN) annual airline survey, Southwest scored the highest, 3.72 out of five, in the overall price value category among all major U.S. airline companies.

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As of December, 2013, the passenger segment comprised 94.5% of its revenues, cargo segment 0.9%, and ancillary revenues comprised 4.6%. Southwest’s (LUV) low cost competitor, Jet Blue (JBLU), also derives more than 90% revenue from the passenger segment and the legacy carriers Delta (DAL), United (UAL), and American Airlines (AAL) derive ~86% from passenger segment, ~2% from cargo, and ~10% from other sources.

Southwest is the largest low-cost domestic airline with the highest number of domestic originating passengers on boarded. It has the second largest market share by revenue passenger miles. Among its record breaking achievements are 41 consecutive years of profitable operations—$754 million in 2013—in an industry where many major airlines have gone through bankruptcy during the same period. Southwest is the only U.S. airline with an investment grade rating.


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