1. What has been Southwest’s traditional pricing strategy? Why has this pricing strategy been so successful throughout the airline’s first three decades?

2. What values do airline customers—both business and leisure travelers—seek when they buy air travel tickets? Has Southwest done a better job than competitors of meeting the needs of these air travelers? In what ways?

3. What internal and external factors affect airline pricing decisions? What impact are these factors now having on airline pricing and profitability?

4. What is Southwest’s current pricing strategy? Does this strategy differentiate Southwest from its competitors? Is the strategy sustainable?

5. What marketing recommendations, including pricing recommendations, would you make to Southwest as it moves into the next decade?

In the early 1970s, when Herb Kelleher and a partner sketched a business plan on a cocktail napkin, they had no idea that Southwest Airlines would become the most successful U.S. airline. In 2003, the company earned $442 million—more than all the other U.S. airlines combined. From 1972 through 2002, Money magazine indicated that Southwest was the nation’s best performing stock—growing at a compound annual rate of 26 percent over the period! It has been profitable every year since its founding, something no other U.S. airline can claim. By 2008, Southwest had 35,000 employees and $9.1 billion in revenue. It has never laid off employees or cut wages in an industry plagued by mergers, downsizing, labor squabbles, and bankruptcies.