Southwest Airlines Case

Executive Summary

Organic growth has been the traditional growth model for Southwest Airlines, Inc (“SWAL”) in the U.S. domestic airline industry. SWAL has always managed growth by developing its own routes and utilizing internal resources; SWAL also uses its own resources to market, list, and sell seats on their flights. Increasing operating costs, severe competition from existing and new airlines, and high barriers of entry for expansion into cities and airports leave little room for growth (in size and revenue) and increasing profitability. Other alternatives must be found to continue to drive revenue and profit, thus increasing value for shareholders.

One alternative for expansion and growth is to continue acquisition of other airlines that operate in the US. SWAL’s first acquisition was AirTran Airways in 2010. This alternative ultimately means that SWAL is moving away from their organic growth strategy and towards the traditional growth strategy of the airlines industry. SWAL has stood out from the competition because of their non-traditional ways of operating and it has also proven to be very lucrative for them as well. If SWAL becomes too much like their competitors, they will lose the competitive advantage they’ve worked so hard to establish.

Another alternative would be for SWAL to start listing their flights on third party websites. There are many benefits to using third party vendors that would enhance SWAL’s pricing advantage such as higher exposure with resultant higher ticket sales and market share, and easy to use side-by-side price comparison options for customers. There are also some concerns to this alternative such as the increased cost from fees to the 3rd party providers, loss of control over ticket pricing and the customer service experience, customer loyalty, and future financial benefits with customers.

Both alternatives offer an opportunity to SWAL increase revenue and market share to increase value for our shareholders. SWAL’s culture is one of growth and independence. Based on this and the research and analysis reported on in this report, it is recommended that SWAL proceed with the first alternative, to expand and grow by way of acquisition of other airlines.

Introduction

Organic growth has been the traditional growth model for SWAL in the U.S. domestic airline industry. SWAL has always managed growth by developing its own routes and utilizing internal resources; SWAL also uses its own resources to market, list, and sell seats on their flights. Increasing operating costs, severe competition from existing and new airlines, and high barriers of entry for expansion into cities and airports leave little room for growth (in size and revenue) and increasing profitability. Other alternatives must be found to continue to