Presented By: Kelly Bossolt Marta Kovorotna Sarah Smith

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

4. Financial analysis

5. Financial analysis

6. 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 • 2nd 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 5th 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