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* The first airline to offer a profit-sharing program to its Employees (instituted in 1973).

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Fuel costs is the second-largest expense for airlines after labor and accounts for about 18 percent of the carrier’s operating costs. Airlines that want to prevent huge swings in operating expenses and bottom line profitability choose to hedge fuel prices. If airlines can control the cost of fuel, they can more accurately estimate budgets and forecast earnings. With growing competition and air travel becoming a commodity business, being competitive on price was key to any airline’s survival and success. It became hard to pass higher fuel costs on to passengers by raising ticket prices due to the highly competitive nature of the industry.

Southwest operates its flight point-to-point service to maximize its operational efficiency and stay cost-effective. Most of its flights are short hauls averaging about 590 miles. It uses the strategy to keep its flights in the air more often and therefore achieve better capacity utilization.

* Low Operational costs / High Operational Efficiency

The labor costs for Southwest typically accounts for about 37% of its operating costs. Perhaps the most critical element of the successful low-fare airline business model is achieving significantly higher labor productivity. According to a recent HBS Case Study, southwest airlines is the “most heavily unionized” US airline (about 81% of its employees belong to an union) and its salary rates are considered to be at or above average compared to the US airline industry. The low-fare carrier labor advantage is in much more flexible work rules that allow cross-utilization of virtually all employees (except where disallowed by licensing and safety standards). Such cross-utilization and a long-standing culture of cooperation among labor groups translate into lower unit labor costs. At Southwest in 4th quarter 2000, total labor expense per available seat mile (ASM) was more than 25% below that of United and American, and 58% less than US Airways.

* Award winning customer service

Carriers like Southwest have a tremendous cost advantage over network airlines simply because their workforce generates more output per employee. In a study in 2001, the productivity of Southwest employees was over 45% higher than at American and United, despite the substantially longer flight lengths and larger average aircraft size of these network carriers. Therefore by its relentless pursuit for lowest labor costs, Southwest is able to positively impact its bottom line revenues.

* Human Resource practices / Work culture

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Louis Armstrong New Orleans International Airport (MSY), one of the fastest growing airports in the nation, is conveniently located just 11 miles from the heart of downtown New Orleans. Travelers can now fly direct to New Orleans from 53 cities across the United States and 6 cities abroad with about 150 daily departures.

With air service from 16 airlines and 59 direct flights to New Orleans, it's easier than ever to get here. For many, a trip to New Orleans is one non-stop flight away.

Operations Analysis – Competitive Dimensions:

Q4 2017 Southwest Airlines Financial Results Conference Call

Software applications, such as those used by clerks to check in passengers, are being replaced. Southwest Airlines’ internally written “Airport Application Suite” is expected to rollout next year as the company transitions from green screens to Window-based user interface. Similar to Wal-Mart Stores Inc., Southwest Airlines believes in developing in-house the software that runs its operations. The company uses very little off-the-shelf software. There are between 75 and 100 projects in the works each year supported by approximately 900 IT employees.


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The old process was manual that involved finding the information, scrolling through several software screens from reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The company is in the process of replacing customer service back-office equipment at airports including at its headquarters in Dallas.

Southwest Airlines

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Radio frequency identification technology, a favorable alternative to bar-coding for luggage identification, is also on Southwest’s radar. It plans to test RFID technology sometime in 2006. Even though, Southwest is playing a little catch-up with other airlines such as Air Tran, Alaska and Champion Airlines, in many cases they are able leapfrog to more sophisticated applications easily having waited longer.

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Although the technology will help Southwest Airlines remain efficient by consolidating passenger information for the company’s 3,000 daily flights, there were concerns it could lengthen the time to get travelers on board. However it was found that scanning each bar code on the boarding passes didn’t increase or shorten boarding schedules, but it did take minutes from administrative processes, such as looking up customer records. The new paper bar code system is giving Southwest ticket agents the ability to match a customer record within having to scroll through and log into multiple software screens. The process is much more automated. Once the bar code on the boarding pass is scanned at the terminal gate it checks off the person from the passenger list in real time.