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Company Profile of Southwest Airlines

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Company Profile of Southwest Airlines
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Pratik Kukreja
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Company Profile of Southwest Airlines - May 13th, 2011

Southwest Airlines Co. (NYSE: LUV) is an American airline based in Dallas, Texas. Southwest is the largest airline in the United States, based on domestic passengers carried, as of June 30, 2010. Southwest operates more than 3,400 flights a day, as of March 2011, utilizing a fleet of 552 aircraft.
Southwest is the United States most successful low fare, high frequency, point-to-point carrier. Southwest controls costs through operation of only two aircraft types on high-density routes throughout the United States and offering few traditional airline services including first class seating, airport lounges, reserved seat assignments, and video and audio programing. Southwest claims that by not offering these services, it can offer lower fares and produce a higher return on invested capital than other airline companies.

Southwest Airlines Co. (SWA), the model for budget upstarts everywhere, has become the largest domestic airline in the United States, by number of passengers carried. More than 70 million passengers fly SWA each year to about 60 destinations around the country. Passengers have found that Southwest's rock bottom pricing creates almost a new form of transportation, more in competition with the automobile than other airlines. They are willing to forsake in-flight meals, baggage transfers, and other traditional frills for economically amenable wings.
The company flies only Boeing 737s, to simplify maintenance and training, and employee productivity is high. Planes are turned around for their next flight in just 15 minutes, one-third the industry average. Though the airline has boosted its wages and taken on other aspects of a traditional airline, such as its first codeshare arrangement, Southwest remains a maverick in the industry.

Southwest Airlines Co. (Southwest), incorporated in 1967, is a passenger airline that provides scheduled air transportation in the United States. As of December 31, 2010, the Company had 548 Boeing 737 aircraft serving 69 cities in 35 states throughout the United States. The Company provides point-to-point, rather than hub-and-spoke, service. During the year ended December 31, 2010, approximately 73% of the Company’s Customers flew non-stop, and the Company’s average aircraft trip stage length was 648 miles with an average duration of approximately 1.8 hours. As of December 31, 2010, the Company served 460 non-stop city pairs. On September 26, 2010, the Company entered into a merger agreement providing for the Company’s acquisition of AirTran Holdings, Inc. (AirTran). In November 2010, the Company terminated its agreement with WestJet to offer connecting service between the United States and Canada. In May 2011, the Company acquired AirTran Holdings, Inc.
The Company employs a fare structure. The Company bundles fares into three major categories: Wanna Get Away, Anytime and Business Select. During 2010, the Company’s southwest.com accounted for approximately 79% of all Southwest Airlines bookings. During 2010, nearly 84% of the Company’s Passenger revenues came through its Website, including revenues from SWABIZ, the Company’s business travel reservation Web page. The Company’s Business Select product includes perks, such as priority boarding, bonus frequent flyer credit, priority security access in select airports, and one complimentary adult beverage. The Company’s Fly By Priority Lane is access for its Business Select Customers and Rapid Rewards A-List Members at many of its airports. Fly By Priority lanes are access lanes located at ticket counters and security checkpoints.
The Company’s SWABIZ allows business travelers to plan, book, and purchase Ticketless Travel on Southwest Airlines. Its EarlyBird Check-in allows Customers to obtain an early boarding position directly behind Business Select and A-List Customers. The Company’s PAWS offering allows Customers to bring small cats and dogs into the aircraft cabin. During 2010, the Company continued its work towards implementing international marketing alliances and codesharing relationships. The Company provides service that allows its Customers to book international flights by connecting with Volaris. Southwest customers can book travel from 20 Southwest cities to five Volaris Mexican destinations, include Cancun, Guadalajara, Morelia, Toluca/Mexico City, and Zacatecas. The new service connects through Los Angeles International Airport, Oakland International Airport, and San Jose International Airport and creates up to 85 additional flight itineraries.
The Company offers a frequent flyer program, Rapid Rewards, which allows Customers to earn credits towards free flights based on trips flown. The Company’s Rapid Rewards frequent flyer program offers three types of travel awards (Awards): the Standard Award, the Freedom Award, and the Companion Pass. Rapid Rewards Members can earn a credit for each one-way trip flown or two credits for each roundtrip flown. They can earn credits by using the services of non-airline Preferred Partners, which include car rental agencies, hotels, restaurants, and retail locations, as well as by using the Southwest Airlines Rapid Rewards Visa Signature Card.

In 2000, SWA introduced an online booking tool geared toward corporate travel offices called SWABIZ. This offered convenient access to Southwest's low fares rather than corporate discounts per se, an official told Business Travel News. Earnings were about $600 million on revenues of $5.6 billion in 2000.
In 2001, Southwest took legal action to prevent the Orbitz online booking site from displaying its fares. This move surprised some observers. Southwest complained of other airlines getting preferential treatment on the site, particularly the ones that owned Orbitz LLC. Southwest did allow the Sabre computer reservations system to list its flights, though reservations had to be made through Southwest.com.
The question of who would follow Southwest's inimitable leader and spokesman, Herb Kelleher, was resolved in June 2001. While retaining the office of chairman, he was replaced as president by the company's general counsel, James F. Parker, and as CEO by former executive vice-president for customers Colleen C. Barrett. (The two had previously worked together for Kelleher's law firm.)
Southwest was not immune to the effects of the September 11, 2001 terrorist attacks on the United States. Increased security following 9/11 made traveling by auto a more attractive choice for many. While its larger rivals laid off tens of thousands of workers, lost billions of dollars, and appealed for bankruptcy protection in the two years following the attack, Southwest remained profitable, avoided layoffs, and kept its employees working.
Southwest allowed the A&E Television Network to film a reality show on its planes beginning in 2003. The show was a clone of a British show centered on easyJet PLC, which itself was closely modeled after Southwest.
Success of the "major" airlines in wresting concessions from labor eroded one area of Southwest's relative competitive advantage as its own unions negotiated more lucrative compensation. Jim Parker retired as CEO in 2004 following contentious contract negotiations with the flight attendants' and mechanics' unions. He was succeeded by former CFO Gary C. Kelly.
After more than 30 years of consistently profitable growth, Southwest was flying more passengers than any other U.S. airline. Its 417 planes were making 2,900 hops a day to 59 destinations. Revenues continued to increase at a 10 percent clip, reaching $6.5 billion in 2004. The company's cargo business, from freight carried in its planes' belly holds, was small but growing, with $117 million in 2004. Earnings of $313 million were no record but were handsome compared to other airlines in the post-9/11 environment.
The airline continued to look for ways to cut costs. It trimmed its reservations staff as Internet booking became more popular. It installed winglets on its planes to cut fuel consumption and benefited greatly from hedging on oil prices.
Southwest entered the Philadelphia market in May 2004, mounting a robust challenge to a US Airways stronghold. The airline was also reviving a challenge to the decades-old law that kept Southwest from operating beyond adjacent states from Love Field. "Growth opportunities have become more precious," CEO Gary Kelly told Air Transport World. SWA entered its first codeshare agreement with the much smaller ATA Airlines in December 2004. This type of deal, common in the industry but surprising for the famously independent Southwest, allowed the two carriers to list and sell seats on each other's flights. Southwest also negotiated to buy six gates at Chicago's Midway Airport from ATA, bringing its total there to 25, and a 27.5 percent stake in ATA, which was in bankruptcy. The deal cost $117 million.
Moving into 2005, Southwest was facing many familiar challenges: rising oil prices, intense competition, cumbersome regulations. In the uncertain times that had legacy (traditional) carriers reeling, Southwest was still winging ahead with its ever-popular low-fare formula.
Principal Subsidiaries: API Terminal, Inc.; Southwest ABQ RES Center, Inc.; Southwest Jet Fuel Co.; TranStar Airlines Corporation; Triple Crown Insurance Ltd. (Bermuda).
Principal Competitors: AirTran Holdings, Inc.; AMR Corp.; Continental Airlines, Inc.; Delta Air Lines, Inc.; JetBlue Airways Corporation; United Airlines Inc.

Beta: 1.07
Market Cap (Mil.): $9,614.38
Shares Outstanding (Mil.): 791.96
Annual Dividend: 0.02
Yield (%): 0.15
LUV Industry Sector
P/E (TTM): 20.04 19.62 18.80
EPS (TTM): 123.57 -- --
ROI: 3.83 2.40 4.19
ROE: 7.47 7.36 7.33

Public Company
Incorporated: 1967 as Air Southwest Co.
Employees: 31,011
Sales: $6.53 billion (2004)
Stock Exchanges: New York
Ticker Symbol: LUV
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation

Key Dates:
1967: Company is incorporated as Air Southwest Co.
1971: Airline launches first route, connecting Dallas, Houston, and San Antonio.
1973: SWA posts first profit and begins RUSH cargo service.
1975: Southwest goes public on the American Stock Exchange.
1976: Company is renamed Southwest Airlines Co.
1977: Shares migrate to the New York Stock Exchange.
1978: Herb Kelleher becomes Southwest's outspoken new chairman.
1979: SWA flies outside Texas to New Orleans.
1981: Kelleher is named company president and CEO.
1982: SWA begins flights to West Coast.
1990: Revenues exceed $1 billion, making SWA a major airline.
1994: Morris Air and Arizona One are acquired.
1996: Online booking site is launched.
2000: SWABIZ corporate booking tool is introduced.
2005: SWA enters first ever codeshare arrangement, with ATA Airlines.

Name Age Since Current Position
Gary Kelly 56 2008 Chairman of the Board, President, Chief Executive Officer
Laura Wright 51 2004 Chief Financial Officer, Senior Vice President - Finance
Michael Van de Ven 49 2008 Chief Operating Officer, Executive Vice President
Ron Ricks 61 2008 Executive Vice President - Corporate Services, Corporate Secretary
Robert Jordan 50 2008 Executive Vice President - Strategy & Planning
Davis Ridley 57 2010 Chief Marketing Officer, Senior Vice President
Jeff Lamb 48 2010 Chief People Officer, Senior Vice President - Administration
Travis Johnson 1978 Director
William Cunningham 67 Independent Presiding Director
John Denison 65 2008 Independent Director
John Montford 67 2002 Independent Director
Nancy Loeffler 64 2003 Independent Director
David Biegler 64 2006 Independent Director
Daniel Villanueva 73 2008 Independent Director
Douglas Brooks 58 2010 Independent Director
Thomas Nealon 50 2010 Independent Director

2702 Love Field Dr.
Dallas, Texas 75235

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