Southwest Airlines began flight operations in 1971, flying three Boeing B737 aircraft between
Houston, Dallas, and San Antonio. Based at Dallas’ Love Field, the airline quickly made its
presence known in the airline industry. Through fiscal 2007, the airline company enjoyed 35
years of continuous profitability, a benchmark unmatched by any other domestic airline company
and one that is all the more surprising given the current difficulties faced by the domestic airline
industry. As of the end of 2007, Southwest served 64 destinations in 32 states in the United
States, with 520 Boeing B737 aircraft in operation and 34,378 employees. This fleet of aircraft
provides Southwest a total capacity of 70,865 aircraft seats,
or an average of a little more than 136 available seats per aircraft.
Given these sustained favorable operating results, Southwest Airlines has achieved near
legendary status as the prototypical ‘‘low cost’’ air carrier. The firm’s value proposition is low-
cost, safe, point-to-point air transportation with a minimum of frills. Southwest typically focuses
on flying into under-served regional airports with sufficient passenger volume to be profitable.
Key aspects of this strategy are low airfares, fast turnaround of aircraft on airport tarmacs, use of
a common aircraft model, tight control of costs, and highly motivated employees. This strategy
has not been at the expense of customer satisfaction; according to the U.S. Department of
Transportation, Southwest consistently has among the fewest customer complaints per passenger
Southwest typically reports relatively low operating expenses on a ‘‘per available
seatmile’’ basis. Available seat-miles (ASM) is a standard input activity metric reported by most
major airlines, and the operating expenses per available seat-mile can thus be compared across
airlines. To illustrate, a 122-seat aircraft flying on a 1,000-mile route would represent 122,000
available seat-miles (even if there are no passengers on the aircraft). Southwest reported GAAP-
basis operating expenses per ASM of $0.0880 in 2006, compared to $0.0805 in 2005; these
measures are among the lowest reported by the major airlines.
Southwest also reports its primary
output measure, an operating statistic called ‘‘revenue passenger-miles’’ (RPM). For example, a
flight carrying 100 fare-paying passengers on a 1,000-mile flight would represent 100,000 RPM.
Revenue passenger-miles is a standard
output measure disclosed in the airline industry and helps
investors compare airline operation scale across different firms. The ratio of RPM to ASM
represents an airline company’s average load factor.