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Southwest Airlines 

“Market Cap $16.81 B As of May 2014

At a Glance
  • Industry: Airline
  • Founded: 1967
  • Country: United States
  • CEO: Gary Kelly
  • Website: www.southwest.com
  • Employees: 44,831
  • Sales: $17.7 B
  • Headquarters: Dallas, Texas
Forbes Lists

#575 Global 2000

  • #528 in Sales
  • #796 in Profit
  • #1074 in Assets
  • #668 in Market value
Profile

Southwest Airlines Co. provides scheduled air transportation services in the United States and near international markets. The company operates Southwest Airlines, a domestic air carrier in terms of originating passengers boarded; AirTran Airways, operates fleet of airline services, using Boeing 717-200 aircraft and Boeing 737-700 aircraft, throughout the United States and to select international locations. Southwest Airlines was founded by Herbert D. Kelleher on March 15, 1967 and is headquartered in Dallas, TX.

“Southwest Airlines History

Early history

Southwest Airlines began with the March 15, 1967 incorporation of Air Southwest Co. by Rollin King and Herb Kelleher to fly within the state of Texas.

Kelleher believed that by staying within Texas, the airline could avoid federal regulation. Three airlines (Braniff, Trans-Texas, andContinental Airlines) started legal action which was not resolved for three years. Air Southwest prevailed in 1970 when the Texas Supreme Court upheld Air Southwest’s right to fly within Texas. The Texas decision became final on December 7, 1970 when the U.S. Supreme Court declined to review the case, without comment.

The story of Southwest’s legal fight was turned into a children’s book, Gumwrappers and Goggles by Winifred Barnum in 1983. In the story, TJ Love, a small jet, is taken to court by two larger jets to keep him from their hangar and to stop him from flying. In court, TJ Love’s right to fly is upheld after an impassioned plea from a character referred to as “The Lawyer”. While no company names are mentioned in the book, TJ Love’s colors were those of Southwest Airlines, and the two other jets are colored in Braniff and Continental colors. The Lawyer resembles Herb Kelleher. The book was adapted into a stage musical, Show Your Spirit, sponsored by Southwest Airlines, and played only in cities served by the airline.

On March 29, 1971 Air Southwest Co. changed its name to Southwest Airlines Co. with headquarters in Dallas. Southwest began scheduled flights on June 18, 1971, Dallas to Houston and Dallas to San Antonio with three 737-200s. The OAG for 15 October 1972 shows 61 flights a week each way between Dallas and Houston Hobby, 23 each way between Dallas and San Antonio, and 16 each way between San Antonio and Houston; no flights were scheduled on Saturdays.

Southwest Airlines founder Herb Kelleher studied California-based Pacific Southwest Airlines and used many of PSA’s ideas to form thecorporate culture at Southwest. Early flights used the same “Long Legs And Short Nights” theme for stewardesses on board typical Southwest Airlines flights. A committee including the same person who had selected hostesses for Hugh Hefner’s Playboy jet selected the first flight attendants, females described as long-legged dancers, majorettes, and cheerleaders with “unique personalities.” Southwest Airlines and Herb Kelleher dressed them in hot pants and go-go boots.

The New York Times wrote in 1971 that Southwest Airlines President Lamar Muse, “says frankly—and repeatedly—that Southwest Airlines has been developed from its inception around the ideas that have proven to be successful for Pacific Southwest Airlines.” “ We Don’t mind being copycats of an operation like that,” referring to a visit he and other Southwest executives made to PSA as they assembled their operating plans. PSA welcomed them and even sold them flight and operations training. Muse later wrote that creating the operations manuals for his upstart airline was “primarily a cut and paste procedure”, and it is said that “Southwest Airlines copied PSA so completely that you could almost call it a photocopy.”

The rest of 1971 and 1972 saw operating losses. One of the four 737s was sold to Frontier Airlines and the proceeds used for payroll and other expenses. Southwest continued a schedule based on four aircraft but using only three, so the “ten minute turn” was born and was the standard ground time for many years.

Wright Amendment

The Wright Amendment of 1979 is a federal law that governs traffic at Dallas Love Field, the pre-1974 airport in Dallas. It originally limited most nonstop flights to destinations within Texas and neighboring states. The limits began to phase out in 1997 and 2005; in 2006, the amendment was repealed, with some restrictions intact until 2014, but added a restriction on the number of gates allowed.

When airline deregulation came in 1978, Southwest began to plan interstate flights from Love Field, causing groups affiliated with Dallas-Fort Worth Airport, including the city ofFort Worth, Texas, to push the Wright Amendment through Congress to restrict such flights. Under the amendment, Southwest and other airlines were barred from operating or even ticketing passengers on flights from Love Field to destinations beyond the states that border Texas. The Wright Amendment’s restrictions did not apply to aircraft with 56 or fewer seats; Southwest did not use the 56 seat loophole. Southwest’s first schedule out of Texas was Hobby to New Orleans about February 1979.

In 1997 Southwest’s efforts paid off with the Shelby Amendment, which added Alabama, Mississippi, and Kansas to the allowed destinations. Southwest began nonstop service between Dallas Love Field and Birmingham, Alabama.

1980s–90s

Southwest hired their first black pilot, Louis Freeman, in 1980. In 1992 he was named the first black chief pilot of any major U.S. airline.

Southwest’s Houston Pilot Base opened on June 1, 1984. Houston was their first crew base outside of Dallas.

On November 30, 1984 Southwest took delivery of their first Boeing 737–300. Southwest was the launch customer and as of May 2012 is the largest operator of the aircraft type. The first 737-300 was dubbed “Kitty Hawk.”

Southwest paid US$60.5 million in stock and cash for Muse Air when Muse was on the verge of collapse in 1985. After completing the acquisition, Southwest renamed MuseAir TranStar Airlines. TranStar became a wholly owned subsidiary of Southwest and operated as an independent airline. Unwilling to compete in a fare war against Frank Lorenzo’s Texas Air, Southwest eventually sold TranStar’s assets to Lorenzo in August 1987.

Southwest moved into their current headquarters in 1990. Previously, the airline was headquartered in the 1820 Regal Row building in Dallas, by Love Field. At that time the headquarters had 256,000 square feet (23,800 m2) of space and approximately 650 employees. The current headquarters facility was built at a cost of $15 million in 1990 dollars. In early 1995 the building received an additional 60,000 square feet (5,600 m2) of space. As of 2006 about 1,400 employees worked in the three story building.

In 1990, the airline registered their aircraft in Houston so they could pay aircraft taxes in Houston, even though the actual corporate headquarters were in Dallas. Southwest was not physically relocating any assets, but Texas state law allowed the airline to choose either Dallas or Houston as the city of registry of their aircraft.

Southwest acquired Morris Air, a competing airline based in Salt Lake City, Utah, in 1992, paying US$134 million in stock. After completing the purchase, Southwest absorbed the capital and routes of Morris Air into Southwest’s inventory and service, including Morris’ Pacific Northwest destinations not previously served by Southwest. One founder of Morris Air, David Neeleman, worked with Southwest for a short period before leaving to found WestJet and then JetBlue Airways, a competing airline.

On March 16, 1995, Southwest became one of the first airlines to have a website. Originally called the “Southwest Airlines Home Gate”, passengers could view schedules, a route map, and company information at Iflyswa.com. Southwest.com is the number one airline website for online revenue, according to PhoCusWright. Nielsen/Netratings also reports that Southwest.com is the largest airline site in terms of unique visitors. In 2006, 70 percent of flight bookings and 73 percent of revenue was generated from bookings on southwest.com. As of June 2007, 69 percent of Southwest passengers checked in for their flights online or at a kiosk.

Southwest Airlines gained a reputation for “outside the box thinking” and proactive risk management, including the use of fuel hedging to insulate against fuel price fluctuation. Some analysts have argued against the style of profit-motivated energy trading Southwest did between 1999 and the early 2000s. They suggested that rather than hedging business risk (such as a hedge on weather to a farmer), Southwest was simply speculating on energy prices, without a formal rationale for doing so.

At present, Southwest has enjoyed much positive press (and a strong financial boost) from their energy trading skills. However, while most analysts agree that volatility hedges can be beneficial, speculative hedges are not widely supported as a continuing strategy for profits.

In March 1996, the airline announced that it would begin to build a 300,000 square feet (28,000 m2) addition to the existing corporate headquarters at a cost of $30 million in 1996 dollars. This occurred after, on Wednesday March 13, 1996, the Dallas City Council unanimously voted to allow for the construction. The airline leased two additional tracts of land, a total of 10 acres (4.0 ha) of space, from the City of Dallas to build a new pilot training facility, a headquarters expansion, and additional parking spaces. A $9.8 million new pilot training facility was built on a 5 acres (2.0 ha) plot of land owned by the city of Dallas; it was scheduled to be completed Spring 1997. With the new pilot training facility built, the old one would be removed and the company would expand its headquarters building to the north. 120,000 square feet (11,000 m2) of building space, which had a price of $16 million including fixtures, was built, making the headquarters have a total of 436,000 square feet (40,500 m2). The airline also leased 4.8 acres (1.9 ha) from the city of Dallas to build additional parking; 700 spaces were added to the existing 1,200. After the facilities announced in 1996 were added, Southwest had a total leasehold of about 24 acres (9.7 ha) of land, including its headquarters, training facilities, and parking. By the end of 1997 the expansion of the facilities at Love Field and several terminal improvements were expected to cost Southwest $47 million.

2000s

Repealing the Wright Amendment

In late 2004, Southwest began actively seeking the full repeal of the Wright Amendment restrictions. In late 2005, Missouri was added to the list of permissible destination states via a transportation appropriations bill. New service from Love Field to Saint Louis, Missouri andKansas City, Missouri quickly started in December 2005.

At a June 15, 2006 joint press conference held by the city of Dallas, the city of Ft. Worth, Dallas-Ft. Worth Airport, American Airlines, and Southwest Airlines, the said parties announced a tentative agreement on how the Wright Amendment was to be phased out. Both the U.S. Senate and House of Representatives passed Wright-related legislation on September 29, 2006, and it was signed into law by PresidentGeorge W. Bush on October 13, 2006. The new law became effective on October 16, 2006, when the FAA Administrator notified Congress that any new aviation operations occurring as a result of the new law could be accommodated without adverse effect to the airspace.

Southwest started selling tickets under the new law on October 19, 2006. Highlights of the agreement are the immediate elimination of through-ticketing prohibitions, and unrestricted flights to domestic destinations eight years after the legislation takes effect. Because of the agreement, nationwide service became possible for Southwest; the law also defined the maximum number of gates at Love Field. Southwest controls all of the Love Field gates except for four gates controlled by Delta Air Lines and United.

Southwest remains the dominant passenger airline at Love Field, maintains its headquarters, hangars, training centers, and flight simulators adjacent thereto, and reflects its ties to Love Field in its stock exchange ticker symbol (LUV).

2008–2009

In 2008, Southwest contracted with Pratt and Whitney to supply the proprietary Ecopower water pressure-washing system, which allows Southwest to clean grime and contaminants off engine turbine blades while the aircraft is parked at the gate. Frequent use of the Ecopower system is estimated to improve fuel efficiency by about 1.9%.

On March 6, 2008, Federal Aviation Administration (FAA) inspectors submitted documents to the United States Congress, alleging that Southwest allowed 117 of its aircraft to fly carrying passengers despite the fact that the planes were “not airworthy” according to air safety investigators. In some cases the planes were allowed to fly for up to 30 months after the inspection deadlines had passed, rendering them unfit to fly. Records indicate that thousands of passengers were flown on aircraft deemed unsafe by federal standards. Southwest declined comment at the time, and US Representative James Oberstar advised a hearing would be held.

Southwest paid US$7.5 million to acquire certain assets from bankrupt ATA Airlines in 2008. Southwest’s primary reason for making the purchase was to acquire the operating certificate and New York LaGuardia Airport landing slots formerly controlled by ATA. While some preferential hiring was indicated at the time of the purchase, the transaction ultimately did not include the purchase of any aircraft, facilities or transfers of employees directly from ATA.

On March 12, 2008, Southwest Airlines voluntarily grounded 44 planes to check if they needed further inspection. The FAA claimed that Southwest Airlines flew almost 60,000 flights without fuselage inspection. Southwest Airlines faced a $10.2 million fine if they violated FAA regulations. There have also been rumors that the FAA knew about Southwest Airlines violations but decided not to fine the airline because it would disrupt the service of Southwest.

On March 2, 2009, Southwest settled these claims, agreeing to pay the FAA fines of $7.5 million for these safety and maintenance issues. The original fine of $30.2 million – a sum which would have been the largest fine in the agency’s history – was lowered after a year of negotiations. The FAA gave Southwest two years in which to pay the fine.

On July 30, 2009, Southwest Airlines announced a $113.6 million bid for bankrupt Frontier Airlines Holdings, the parent company of Frontier Airlines. Southwest planned to initially operate Frontier as a stand-alone carrier, eventually absorbing the airline and replacing Frontier’s aircraft with Boeing 737s. Less than one month after submitting its bid, Southwest learned on August 14 that it had lost the initial bidding to Republic Airways Holdings, and elected not to counter or pursue the deal further. Industry experts had expected Southwest to win the initial round of bidding, allowing Southwest to grow its presence in Denver and serve international destinations. Southwest stated that its requirement for pilots’ unions at both companies to reach a negotiated (not arbitrated) agreement as a condition of acquisition was a key factor in its abandonment of its bid.

On August 26, 2009 the FAA investigated Southwest for installing improper parts on about 10% of its jets. The work was performed by an outside maintenance company. The FAA stated that the parts do not present a safety danger, but the airline was given until December 24, 2009 to replace the parts with those approved by the FAA. The FAA is still determining whether it will fine Southwest or its vendor.

2010s

AirTran Airways acquisition

Southwest Airlines first announced the acquisition on September 27, 2010, and received final approval from the United States Department of Justice on April 27, 2011. On May 2, 2011, Southwest Airlines completed the acquisition of AirTran Airways by purchasing all of the outstanding common stock, corporate identity, and operating assets of AirTran Holdings, Inc. (former stock ticker NYSE:AAI), the former parent company of AirTran Airways. Southwest Airlines estimates the transaction’s value at $3.2 billion and expects onetime costs to integrate the two airlines of $500 million, with cost synergies of approximately $400 million annually. The greatest impact on Southwest will likely be the elimination of a direct low-cost competitor, access to Atlanta, and the addition of landing slots in the New York and Washington DC areas. Southwest obtained a single operating certificate (SOC) from the United States Federal Aviation Administration on March 1, 2012, but expects that full integration of AirTran into Southwest’s operations to continue until 2014.

An entity called Guadeloupe Holdings was formed by Southwest and currently acts as a wholly owned subsidiary of Southwest Airlines and holding company for AirTran’s current operations and assets. Southwest’s organized labor groups have ceded contractual “scope” provisions pending acceptable negotiated seniority integration agreements. Operations of the two airlines will remain isolated until terms of this integration are fully negotiated (or arbitrated). Bound by federal law, such as McCaskill-Bond legislation, as well as a four-party process agreement, Southwest has confirmed that it will integrate all of the pilots in a fair and equitable manner.

The purchase adds 25 additional destinations previously not served by Southwest including cities in Mexico, the Caribbean, and Atlanta, Georgia, an AirTran hub and, at the time the largest U.S. city not served by Southwest. On October 10, 2011, USA Today reported that Southwest will work to no longer bank flights in Atlanta as AirTran did. AirTran’s Boeing 737 orders and options will remain in place and those deliveries to the Southwest operation will occur over the coming years. AirTran 737 aircraft are in the process of being converted to Southwest’s new evolve interior and canyon blue livery.

On February 14, 2013, Southwest announced that it had begun codesharing with AirTran. It took the first step on January 26, 2013 by launching shared itineraries in five markets. Southwest continued to launch shared itineraries with 39 more markets beginning February 25, 2013. As of April 2013, shared itineraries are available for travel between all Southwest and AirTran cities (domestic and international). In May 2014, it was announced the airlines will be fully integrated by December 29, 2014. 

2011–present

For the tenth year in a row, Fortune magazine recognized Southwest Airlines in its annual survey of corporate reputations. Among all industries in 2004, Fortune has listed Southwest Airlines as number three among America’s Top Ten most admired corporations.

On December 13, 2011, Southwest placed a firm order for 150 Boeing 737 MAX aircraft, becoming the launch customer for the type. First delivery is expected in 2017.

In January 2012, Southwest Airlines expressed interest in serving Mexican and South American destinations out of Hobby. On May 30, 2012 Houston’s city council approved Southwest’s request for international flights from Hobby. Southwest agreed to invest at least $100 million to cover all costs tied to the Hobby upgrade, which includes designing and building five new gates and a customs facility. Construction at Hobby is expected to take two years, with international flights likely beginning in 2015.

On April 11, 2012, Southwest introduced the 737–800 to the fleet. It seats 175 passengers as compared to the regular 143-seater 737-700. The first 737–800 was called “Warrior One” in salute of the Southwest Employees’ Warrior Spirit.”

*Information from Forbes.com and Wikipedia.org

**Video published on YouTube by “NutsAboutSouthwest

Industry:

Airline