Southwest Airlines Case

Southwest Airlines Case - A Mary B Teagarden Creating the...

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A09-08-0014 Copyright © 2008 Thunderbird School of Global Management. All rights reserved. This case was prepared by Mary B. Teagarden for the purpose of classroom discussion only, and not to indicate either effective or ineffective management. Mary B. Teagarden Creating the Future at Southwest Airlines Our essential difference is minds, hearts, spirits, and souls. Herb Kelleher Gary Kelly had reason for pause as he assumed the role of president and chairman of Southwest Airlines in the summer of 2008. To begin with, he was filling the shoes of legendary and larger-than-life Southwest co-founder Herb Kelleher. The company was celebrating an astounding 35 consecutive years of profitability. Kelly had filled many other roles at Southwest, including controller, CFO, vice president of finance, and CEO. In fact, Kelly had just been named one of the best CEOs in America by Institutional Investor magazine. Southwest was known for innovation in both its business model and strategic human resource practices. Under Kelleher’s leadership, Southwest introduced innovative responses in the face of difficult industry conditions, not just once but several times. These innovations resulted in industry consolidation, ongoing profitability for the company, and South- west was even credited with creating the discount airline industry segment. Kelly faced many challenges at a time when the airline industry was experiencing the worst environment in its history. Would Southwest’s cost advantage erode in the face of spiraling fuel costs, costly labor concessions, and the ever-increasing efficiency of rivals? As he contemplated the next moves in this increasingly turbulent environment, Kelly grappled with the most fundamental issues. What would he have to do to keep Southwest’s innovativeness alive? More importantly, was it time to reinvent the 40-year old Southwest Airlines? The Birth of Southwest The story of Southwest Airlines’ founding is legendary—the company got started in a bar. Herb Kelleher, a lawyer in San Antonio, and his client, Rollin King, a Texas banker, founded the company over drinks at a local bar in 1966. They had a simple vision: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.” 1 Kelleher invested $10,000 of his own money to launch the business—an investment now worth more than $200 million. Their idea was revolutionary: a cut-rate airline that would fly between San Antonio, Dallas, and Houston—the three big cities in Texas. Kelleher admits that he was not sure that the idea would work. Not only did the idea work, this bold move was the start of the discount airline industry, and is considered the principal driving force for transformation of the airline industry.
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