Texas businessman Rollin King and attorney Herb Kelleher founded Air Southwest in 1967 as a regional airline linking Dallas, Houston, and San Antonio. Southwest made its first scheduled flight in 1971 and passed the $1 billion revenue mark in 1989. Today, Southwest Airlines operates about 3,400 flights each day and is the largest airline in the United States based on passengers carried.

Southwest is a classic no-frills airline although service is generally perceived to be excellent and on-time performance rivals or exceeds its larger peers. Meals are not served although passengers are encouraged to bring their own food on the plane. In addition, there are no reserved seats. Each passenger is allowed to board and select a seat based on his or her arrival time at the gate. Southwest operates out of smaller airports whenever possible.

Southwest was the first carrier to establish an Internet home page and sells a substantial portion of its tickets through its own website. Southwest spends about $1 to book a ticket online, compared to $6 to $8 per ticket when booking through agents. The airline’s frequent-flier program, known as Rapid Rewards, is among the most generous in the industry.

Southwest has enjoyed 38 consecutive years of profits, including 2001 when the 9/11 terrorist attacks riveted other American carriers into deep losses. The airline has been the only major U.S. carrier to avoid layoffs and maintain a full flight schedule since that time. The company even began hiring additional employees in early 2002.

Southwest is known for its fun-loving, service-oriented culture. Every flight attendant seems to be an amateur comedian, an approach that subsided after 9/11 but reemerged a few years later. Chairman Herb Kelleher, who stepped down as CEO in 2001, helped establish a reputation for the company as one of the top employers in the United States. Fortune typically recognizes Southwest as one of the most admired companies in its annual surveys. Southwest is nearly 85% unionized but has experienced only one strike.

Southwest acquired AirTran in 2011, giving the airline a foothold in Atlanta, the world’s most traveled airport.

Case Challenges

1. Because Southwest competes primarily in short-haul routes at low fares, should traditional carriers such as American and Delta be considered as primary competitors?

What about other transportation providers such as Amtrak and Greyhound?

2. Southwest was the only major U.S.-based airline to turn a profit in 2001. Why?

3. How does Southwest’s acquisition of AirTran alter the firm’s competitive landscape?