1. Presented By: Kelly Bossolt Marta Kovorotna Sarah Smith

2. Executive Summary  Financial Analysis  External Analysis  Entry & Rivals  Industry  Customers  Substitutes, Complements, Acquisitions  Internal Analysis  Philosophy  Competitive advantage & capabilities  Resources  Recommendations

3. Financial analysis

7. External Analysis: Entry  Deregulation Act  Enabled new entrants  150 went bankrupt  8/11 developed merging agreements  Created competition  Creating lower prices  Creating more travelers  Rivals  Delta, United, American  80% Domestic Market, 67% Trans-Atlantic Market

8. External Analysis: Industry  2 nd Tier Providers  Took on the abandoned and ignored markets  Hub – and – Spoke  80% costs were fixed  Control Mechanism  Sublease for premium (18% higher for Southwest)  Efficient

9. External Analysis: Customers “The ones that could afford to fly, and the ones that couldn’t”  Two types of travelers  Convenience, time oriented  Price sensitive, leisure  Two tiered Pricing structure to accommodate both

10. External Analysis: Substitutes, Complements & Acquisition  Substitutes  Train, Bus, Boat, Car, Horse  Complements  Meals, Comfortable seating, Television  Imitator  JetBlue  Southwest acquired and integrated into its own  Diversified locations  Slightly more sophisticated  Leather Seats, Televisions

11. Internal Analysis: Philosophy & Culture  Manage in good times  Secure jobs for the people  Challenged accepted norms  Set competitive thresholds for other airlines to emulate  1972: Chivas Regal  Culture  Southwest Spirit  Positively Outrageous Service  Extroverted personalities  Red hearts and “Luv”

12. Internal Analysis: Competitive advantage & Capabilities  Consistently profitable  Bucked the industry trend by earning profits for 36 consecutive years  Turnaround time  Southwest: 15 min  Industry Average: 45 min  First come first served seating  First to:  Sell seats over the Internet  Ticketless travel  Frequent flyer program based on flights, not miles  Employee profit sharing (owned 10% of company’s stock)

13. Internal Analysis: Competitive advantage & Capabilities  Debt-to Equity ratio much lower than competitors  Ranked first in fewest customer complaints  Recognized as the 5 th most admired company in 2007 by Fortune Magazine  Top Performing Airline behind Singapore Airlines  Lowest cost per available seat in the industry

14. Internal Analysis: Operations  Short-haul  Less than 500 miles  Point-to-point flights  Maximum convenience for passengers flying between two cities  Frowned upon hub-and-spoke  Too time consuming  Well trained employees  University of People  Each Department had own training division that focused on technical aspects of the work

15. Resources  Herb Kelleher  “A visionary who leads by example- you have to work harder than anyone else to show them you are devoted to the business”  Staff  Fun, outgoing, enthusiastic  Well trained  Consistent revenue  Young aircraft (9 years)  3,300 flights a day  64 cities

16. Recommendations  Move to international markets  Not limited to Trans-Atlantic, integrate into new markets  Remain fun and efficient  This is one of their strongest competitive advantages