Southwest Airlines is the largest budget airline in the US.
It’s also one of the most loved American carriers and one of the most profitable in
the world.
Southwest is certainly a unique airline.
Offering cheap flights, keeping customers happy and employees satisfied, it stands out
among the rest, not really fitting into either the full-service or low-cost business model.
Let’s talk about how they do that and explore the fascinating success of Southwest Airlines.
With a heart logo, a LUV stock symbol, and a history of fun, catchy ads, Southwest
certainly has developed an image of a company that cares.
It also supports this image with its behavior.
It’s the only low-fare carrier that allows two free checked bags and a free carry-on.
You can cancel a flight up to 10 minutes before departure with no charge and receive a full
refund or a flight credit.
Southwest also offers 32 inches of legroom, comparable to full-service carriers like Delta,
American, United, and Alaska.
In addition, many flights offer free entertainment with a wide selection of movies and shows,
complimentary nonalcoholic drinks, and a variety of snacks even on short-haul flights.
Customers are not the only group happy with the airline.
Southwest employees also hold the company in high regard.
In 2022, Forbes listed Southwest in the top 10 of world’s best employers, making it
second only to Delta.
Almost 80 percent of Southwest’s workforce is represented by unions.
They have an above-average retirement savings plan, and employees and their families can
travel for free.
Reviewers also cite great flexibility and affordable insurance and healthcare.
Employee satisfaction translates into great customer service, so it’s a win-win for
all parties.
How did this come to be?
Southwest Airlines was founded in 1966.
It was headquartered at Dallas Love Field airport and started flying between Dallas
and San Antonio and Dallas and Houston.
At that time, the airline industry was regulated by the government, which maintained control
over prices and routes.
But Southwest had a plan.
They decided to stay within the borders of Texas and that would exempt them from federal
regulations.
And it worked.
Southwest successfully undercut competitors’ prices and offered a fare between Dallas and
San Antonio for half of the standard price.
This encouraged three competing airlines to start legal action against Southwest.
The competition lost and that enabled Southwest to fly in Texas for cheap.
From the ground up, Southwest Airlines took meaningful inspiration from a different carrier
– Pacific Southwest Airlines.
Early in Southwest’s history, there was no confidence that an intrastate carrier could
be successful.
But one of the founders, Rollin King, pointed to Pacific Southwest Airlines, which operated
strictly within their home state of California.
King saw a lot of similarities between Texas and California – two economically successful
regions with several large cities spread far apart.
King drew the Texas Triangle with three key cities (Dallas, Houston, and San Antonio)
at the points that their new business would connect.
The other founder, Herb Kelleher, was inspired and started studying PSA culture and strategy,
which were soon incorporated in their own company.
PSA’s company culture and overall image were…unusual, to say the least.
They bet on friendliness and humor, asking the crew to joke with passengers and running
cheeky ads.
The aircraft exteriors were decorated with a wide smile and flight attendants wore trendy,
brightly-colored uniforms to underscore the cheerful atmosphere to expect on a flight.
Herb Kelleher saw value in that and selected stewardesses who’d been dancers and cheerleaders,
thinking they’d keep the spirits up on board, dressing them in short skirts and high-knee
boots.
Suggestive commercials and ads that promise love on board look even more controversial
nowadays.
Today, their message of love remains, but it’s dressed in a more family-friendly wrapper
and spreads to their employees as well.
Yet, the culture of love wasn’t all that Southwest brought to air travel.
Their innovative, low-cost solutions really made a difference.
There were 4 big decisions that had the largest impact.
First is an all-economy layout. Southwest ignored business and first class so they could fit more people on board.
The different classes and fare structures would only complicate the low-cost concept.
So the 737-700 layout used by Southwest can fit 143 passengers while United with their
First and Economy Plus sections – only 118.
At the same time, Southwest is the only major airline with an open seating policy.
This means that passengers don’t get their seats assigned during check-in,
but rather can choose any available seat on board.
This seemingly chaotic method actually turned out to work very well because it’s uniquely
organized.
Depending on when they check in, passengers are assigned a boarding group (A, B, or C)
and positions within the group from 1 to 60.
Those are distributed on a first-come, first-served basis, so that people traveling together will
also board together.
During the boarding process, monitors show the group and position range that is currently
boarding.
For example, if it’s indicated that group B with positions 1-30 is boarding, then people
whose positions on the boarding pass fall into that range, can join the line.
Once on the plane, people can choose whichever seats are unoccupied.
Passengers can purchase a more expensive fare or the ability to check in earlier.
This gives them priority boarding positions, but only guarantees a place in line, not a
specific seat.
The benefit of this approach is that passengers don’t storm the gate trying to get to their
seats faster, but simply wait elsewhere until their group is announced.
At the same time, this method motivates people to check in early, so they have the best chance
to grab the seats they like.
Passengers are also less likely to be late so as not to be left with the least desirable
seats.
All in all, this method is considered one of the most efficient in the industry and
it allows Southwest to board faster and depart on time.
Another interesting approach Southwest has taken from the beginning was targeting smaller
airports.
Southwest’s first and current corporate headquarters has been Dallas Love Field.
It was Dallas’ main airport just a few years before Southwest was founded and before Dallas/Fort
Worth International Airport was opened in 1974.
Today, Southwest often flies both to main airports and secondary ones – Chicago Midway,
Houston Hobby, Long Beach Airport in Los Angeles, Oakland Airport in San Francisco, and many
more.
Other, full-service carriers tend to focus on main airports as they’re larger and more
convenient, but they’re also more congested and expensive to operate in.
Southwest saw an opportunity in smaller airports.
Yes, secondary airports are often located further from cities and have older facilities
but they get less traffic, which means fewer delays as a result of another aircraft occupying
the runway, and cheaper slot spaces.
On top of that, serving unpopular airports and destinations led to the so-called “Southwest
effect.”
This phenomenon describes the situation where, due to the entry of a new low-cost carrier,
the traffic in secondary airports increases while fares on the particular route decrease.
Fearing losing their passengers, traditional airlines started offering lower prices and
low-cost packages.
But it all resulted in increased demand for air travel and growth experienced by every
airline.
One more Southwest practice that helps them stay cost-effective is utilizing only one
model of aircraft.
Southwest sticks to the Boeing 737 family, which introduces a few important benefits.
First, training is much more simplified.
Pilots, flight attendants, and mechanics only have to learn one type.
Maintenance is also easier and you don’t have to stock extra parts for various types.
Safety and work requirements are also not that complicated to update when necessary.
Other airlines started employing the same strategy.
Ryanair also uses 737s only and easyJet exclusively operates the A320 family.
The combination of the tactics and practices that Southwest has been successfully using,
of course, became a template for other carriers.
And basically, it evolved into a whole new business model in commercial aviation – low-cost
carriers.
Yes, the first budget airline is considered to be Pacific Southwest, but Southwest was
the one that laid the groundwork for how the whole industry works today.
Secondary airports, single aircraft type, less popular routes – those are the characteristics
of a quintessential low-cost airline.
Yet, Southwest still stands apart.
Let’s look at ancillaries, for example.
If you’ve seen our video on the low-cost model, you know that many LCCs and traditional
airlines have unbundled their fares, meaning that now passengers need to pay for meals,
in-flight entertainment, preferred seats, checked bags, and so on, while the base fare
comes cheaper.
This practice was started by Spirit – the ultra low-cost carrier – and became massively
popular.
Many passengers liked not having to pay for things they didn’t need and budget passengers
now had more opportunities to travel.
But at the same time, ancillaries brought huge sales to LCCs, up to 50 percent of all
revenues!
But Southwest didn’t follow suit.
At least not precisely.
Though they still have ancillaries, such as early check-in and on-board WiFi, many things
remain free.
Despite offering low fares, Southwest has little in common with how modern low-cost
carriers are perceived.
And that’s what makes it so popular.
Southwest exceeds expectations of a budget airline experience and earns loyal customers
this way.
As long as they stick to their focus on “love and care” and don’t try to fit either
into a full-service or low-cost box, they will be profitable and preferred by many American
travelers.
Thanks for watching and check out our video covering how modern low-cost carriers operate
compared to traditional airlines.
See you soon.