50 Years On: Southwest’s Low-Cost, High-Value Success Story

Photo: Brandon Farris (@brandonsblog)

LONDON – March 2021 marked fifty years of the Southwest Airlines name being in existence, marking a milestone in what has been seen as a low-cost, high-value success story.

This article will look at the history of the carrier over the last fifty years, including how it remains to be the oldest and most popular low-cost carrier in the industry and whether any other airlines in the U.S and around the world could look to adopt such a model during the COVID-19 pandemic.

50 Years of Significant History – A Brief Look

To understand why Southwest has had the success it has, we must briefly look at the history of the carrier and where it started.

Whilst it is the 50th anniversary of the Southwest name, it is actually the 54th birthday of the carrier following the forming of Air Southwest Co being incorporated on March 15, 1967 (SWAMedia, 2021).

For three years, the airline had to fight with the likes of Braniff, Trans-Texas, and Continental Airlines over restraining orders which prevented the carrier from operating (ibid).

Photo Credit: Vincenzo Pace (@jfkjetsofficial)

Once the courts denied the appeals from Braniff and Texas International, the airline name was changed to Southwest Airlines on March 29, 1971, with Boeing selling three 737-200s to the airline, with the manufacturer carrying “90% of the financing” (ibid).

In that same year, more appeals were filed from competitors but were thrown out once again, enabling the airline to begin services to Dallas (DAL), San Antonio (SAT) and Houston (IAH) (ibid).

By the end of 1971, the airline had carried over 108,000 passengers from 6,051 different trips across just four aircraft, showing what would be the true potential of the business’ success going forward (ibid).

Even with the airline selling its fourth aircraft to Frontier Airlines in May 1972 for a “$500,000 net profit”, the airline was able to carry over triple what it carried passengers-wise within a year, handling 308,999 customers in a 12-month period (SWAMedia, 2021a).

1973 was the year that things began to heat up for the airline, offering a “half-fare sale to SAT on all flights, $13 one way, $25 round-trip” (ibid). This encouraged a price war with Braniff, but Southwest came out on top after throwing in a “free bottle of premium liquor with every full fare ticket” (ibid).

Such a battle was one of the “most widely reported and publicly watched conflicts of aviation history”, giving Southwest all of the exposure it needed to make the airline end with its first yearly profit having carried over 500,000 passengers at that point.

Photo Credit: Vincenzo Pace (@jfkjetsofficial)

By 1974, it had handled its one millionth passenger and was surpassing the three quarters of a million passengers carried on average every year (ibid).

From 1975 to 1983, the numbers increase from one million per year to 9.5 million passengers per year through the introduction of more aircraft into the fleet, including Boeing 727s, and adding more destinations. This was where momentum was beginning to speed up (SWAMedia, 2021b).

1984 to 1989 was a significant five years for the airline, having reached “major carrier status in 1989” due to the airline receiving revenues of over $1 billion every year and handling nearly 18 million passengers a year (SWAMedia, 2021c).

Airline load factors were remaining strong, and the airline was ordering more Boeing aircraft as well as expanding into more destinations such as Phoenix, Los Angeles and Ontario.

Southwest entered the 90’s handling over 20 million passengers per year, operating 124 aircraft in the fleet and expanding further into the West Coast of the U.S with the introduction of “Most to the Coast” flights between Los Angeles and Las Vegas (SWAMedia, 2021d).

And by decade-end, the airline entered 2000 having handled 57.5 million passengers, highlighting such a meteoric rise in that ten year period and entered the new decade opening up operations in Orlando, employing at the time 750 pilots and 900 flight attendants when fully staffed (SWAMedia, 2021e).

Even in the wake of the financial crash in 2008, the airline was still able to produce its “68th straight profitable quarter” and continued rapid growth in the likes of Denver with flights to Las Vegas and San Antonio (SWAMedia, 2021f).

Photo Credit: Vincenzo Pace (@jfkjetsofficial)

With the uncertainty that lingered years after, Southwest was still able to save money and remain financially competitive and viable, especially with a fuel reduction of 54 million gallons of fuel each year due to the use of the winglets on the Boeing 737s (ibid). It is elements like that which made Southwest stand out from the rest.

As the airline entered the last decade, its main efforts were seen in 2014 when it acquired 54 slots for 27 daily flights out of Washington’s Reagan National Airport in an aim to acquire significant business out of the D.C area (SWAMedia, 2021g).

Such patterns of slot acquisition and route portfolio boosting continued until the COVID-19 pandemic. 2019 numbers see Southwest carry around 134.1 million passengers per year, making it the largest low-cost carrier in the United States (SWAMedia, 2020).

That brings us to today. Even in the wake of the COVID-19 pandemic, its successes of the last 50 years have prepared the airline in terms of financial efficiency, strength and muster. Which brings us into why this airline has been successful over the last five decades.

Why is the airline successful?

As noted by scholars over the last few years, it has been noticed that even “in a highly volatile industry, Southwest has been profitable every year except for the year in which it was established. That means [that] by 2003 [for example], Southwest [had] been profitable for 31 years”, which even in the wake of financial depression after 2003 and beyond, the airline has still performed significantly well (Gittell 2004, p. 1). It highlighted that the airline’s low-cost model has worked through the different generations it experienced. Because a lot has changed since 1971.

Another aspect of the airline’s success is the people in the business. “Southwest’s success may be due largely to its unusual focus on creating value for employees. “LUV” and “FUN”, the cornerstones of Southwest’s employee-relations approach, represent concern and respect for the individual” (Hallowell 1996, p. 513).

Photo: Brandon Farris (@brandonsblog)

Happier staff means tat they will be better motivated, which mean the job will be performed at a much better rate. In the context of COVID, the motivation is especially much higher, especially with CEO Gary Kelly being committed to furloughing people as a last resort (Hoopfer, 2020).

Perfect product placement was also at the forefront of the Southwest model. The airline underwent a “successful differentiation strategy orientation from the venture… Southwest Airlines to position itself as the lowest fares airlines, its strategy in any market environment, to maintain the lowest fares” due to the base including “business passengers, low-income families and students” (Dan & Xinde 2014, p. 235).

Finally, Herb Kelleher, an important figure of the Southwest family, enabled an attitude of community-based business rather than focusing on the sole financial aspect of the airline.

As he says, “just by the way you do business, you can make a successful contribution to the good of the American people, and that’s what I think Southwest has done” (Guinto 2006, p. 110). Because the airline cares, the respect will therefore be returned via successful business metrics.

Can other airlines adopt this model to ensure longevity post-pandemic?

Such a success story on the Southwest can easily be replicated onto other airlines across Europe, both low-cost (LCC) and also full-service (FSC).

For example, “to combat customer perception, Ryanair launched an “Always Getting Better” program that focuses on customer service improvements for the entire family”, meaning that the airline is finally beginning to take an approach towards people, being its customers (Tran et al 2015, p. 5).

Photo: Brandon Farris (@brandonsblog)

With such carriers catching on to that model, customer service is going to be more important than ever especially as the industry looks to turn away from the pandemic and ensure safety and confidence when they are flying with such airlines.

Whilst FSC’s take more of a customer-based focus compared to most LCCs, it could be debated that they need to change the way that they operate.

“For low cost subsidiaries to survive and prosper, ‘matching’ models of human resource management predict that they need to create a low-cost employment system, which will be very different from that of the parent company” (Harvey & Turnbull 2010, p. 230). This basically means that FSCs may need to follow in the footsteps of Ryanair, Southwest, easyJet and others as COVID has reduced people’s incomes, which may force a hand in choosing LCCs over FSCs.

If FSCs can achieve this, then “it may try to differentiate its product to gain a degree of monopoly power”, which is what such airlines would want in the midst of a global pandemic (Button 2012, p. 200).

A final perspective to look at is that airlines must go hard on airports, regardless of how brutal or harsh it may be.

Photo: Brandon Farris (@brandonsblog)

Whilst this is not an ideal scenario, it is typical of LCC’s to do this. As Humphreys et al (2006, p. 413) says, “the low-cost model has implications for the airline-airport relationship, forcing airports to negotiate contracts which significantly reduce aeronautical revenues”.

This is of course why we are seeing an increase in commercial revenue from airport parking, drop-off and other ancillary methods of financial acquisition.

Such a strategy appears to work as “evidence suggests that increasingly LCCs also establish themselves in what can be considered the major airports”, like with Ryanair in Dublin as an example (Dobruszkes 2017, p. 50).

This in turn also encourages a battle of the major airports versus the regional airports, which “suggests that the regional airports may have been more active in reducing their charges or keeping them competitive to stimulate growth”, offering the view that airports play off each other at the benefit of the airline (Dennis & Graham 2006, p. 6).

If FSCs could potentially adopt that same model, then it could prove to be a chaotic few years for airports.

Overall Thoughts

Photo: Brandon Farris (@brandonsblog)

Overall, the success of Southwest Airlines over the past 50 years should prove to be a case study for other LCCs and FSCs alike to adopt their model more. As income reduces because of the pandemic, the focus will now be on LCCs for affordable travel.

Airlines like Ryanair and others have been well-averse with placing airports against each other, but need to go that one step extra to include a more people-based approach to its customer care.

It is airlines such as Southwest that have been ahead of this trend for five decades, and even in the midst of a global pandemic, it will continue to do so for many years to come.


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