Businessmodel of Southwest Airlines

Customer Segments

The vast majority of Southwest Airlines’s customers are general consumers, professionals and families. The Company operates the largest national low-cost airline in the US, primarily attracting customers that are seeking low budget, no frills air fares. In 2015 Southwest Airlines served enplaned an average of 12 million passengers each month.

Southwest Airlines also serves a range of corporate clients, providing business and group travel services to companies across multiple sectors in the US, often at discounted prices. The Company also serves corporate clients, including importers and exporters of perishables and consumer goods, with a range of cargo and shipping services.

Southwest Airlines serves customers primarily in its native market of the US, but also customers across near-international jurisdictions where the Company operates flights. This includes a number of Central American and Caribbean destinations, such as Mexico, Aruba, the Bahamas, Costa Rica, and Belize.

Value Propositions

Southwest Airlines provides value to its customers in the following ways:

• Its low-cost air fares, providing domestic and international air travel to consumers at prices lower than most major airlines, with additional services available at a small cost;
• Its limited fees, with the Company allowing passengers to check two pieces of luggage, including sports equipment, at no additional cost;
• Its broad network of national and near-international destinations, including 91 destinations across 41 US states and locations in the Caribbean and Central America;
• Its customer service, with the Company providing quality customer care to its passengers, despite its low cost fares; and
• Its rewards and frequent flyer privileges, with the Company operating a Rapid Rewards Program, through which customers can earn points that can be spent on flights and products provided by partner companies. ### Channels

Southwest Airlines makes the majority of its sales through its online channels. It operates a website at www.southwest.com, through which it provides information on its services, destinations, fee structure and schedule.

Its website also hosts the Company’s flight booking portal, through which customers can search flights, make reservations, and manage their bookings. Some of this functionality can be accessed through the Southwest Airlines mobile app. In addition to its consumer travel portal, Southwest Airlines also operates a corporate travel site, through which business customers are able book travel, earn rewards and manage accounts. The Company also operates direct sales and support teams across its network of offices.

Southwest Airlines’s own sales channels are supported and extended by a network of affiliate companies and websites, which assist in driving sales for the Company. The Company notably makes a proportion of its sales through third-party online booking providers BookingBuilder, Sabre, and Apollo.

Customer Relationships

Southwest Airlines makes sales primarily on a self-service basis through its own online channels and its network of affiliate and distribution partners. Customers are able to book flights, car rental and manage their bookings through the Southwest Airlines website and app without interacting with members of the Company’s sales team. The Company makes some sales through its own direct sales teams, which principally handle corporate clients that require a greater degree of personal assistance to fulfil their needs.

Where Southwest Airlines provides a more personal service to consumers is through its in-flight and airport staff that are available to customers at all times to provide assistance and information. The Company also provides customer support to passengers during and after the booking process, with customers able to contact support staff directly with technical issues, questions and concerns over the phone, via email or by post. A range of additional support resources, such as FAQs and guides, can be found on the Southwest Airlines website.

Customers can additionally interact with Southwest Airlines directly through its social media accounts with Twitter, Facebook, Instagram and YouTube.

Key Activities

Southwest Airlines operates a low-cost passenger airline service that provides scheduled air transportation in across the US and near-international markets.

The Company serves approximately 91 destinations, covering more than 40 US states, including the District of Columbia and the Commonwealth of Puerto Rico, and a number of nearby international destinations, including Mexico, The Bahamas, Aruba, Mexico, Costa Rica, and Belize. Southwest Airlines manages and operates a fleet of just over 700 Boeing 737 aircraft. Southwest Airlines operates flights under a point-to-point model combined with a rolling hub system in its larger cities, compared to the hub and spoke model employed by most competing airlines.

In addition to its consumer air travel services, the Company also provides corporate and group travel services, as well as cargo and shipping solutions.

Key Partners

Southwest Airlines collaborates with a broad network of partner companies to extend its own suite of service offerings

• Affiliate Partners, comprising a network of websites and travel agencies that extend the Company’s marketing reach and drive sales to the Company’s booking portal;
• Rewards Partners, that comprising travel, retail, dining and lifestyle companies that provide products and services as part of the Company’s frequent flyer rewards program;
• Service Partners, comprising a range of service providers, such as car rental providers, that serve as the Company’s preferred partner in return for providing discounted prices to Southwest Airline customers; and
• Alliance and Joint Venture Partners, comprising various technology and air service companies with which the Company launches joint-venture projects and shares resources. Southwest Airlines has partnered with ride service Lyft and car rental provider Hertz, and includes NRG, Laithwaite’s Wine, eMiles, and Best Western Hotels and Resorts among its reward program partners.

Historically, Southwest Airlines has also partnered with other airlines to extend its own services, including tie-ups with Volaris, AirTran and Icelandair. None of these partnerships, however, remain current.

Key Resources

Southwest Airlines’s key resources are its fleet of aircraft, its maintenance and service infrastructure, its sales channels and IT infrastructure, its network of partnerships, and its personnel.

Key to the Company’s operations is the operation and maintenance of its fleet of more than 700 Boeing 737 aircraft, and the activities of its supporting infrastructure and flight crew, and ground crew personnel.

Cost Structure

Southwest Airlines incurs costs in relation to the operation and maintenance of its aircraft, the purchase and supply chain management for its consumables – notably fuel, the maintenance of its physical infrastructure, the management of its partnerships, the maintenance of its IT infrastructure, and the retention of its personnel.

The payment of salaries, wages and benefits to its 49,600 active fulltime employees was Southwest Airlines’s largest expense in 2015, representing around 41% of total costs for the year. The cost of jet fuel remains substantial for Southwest Airlines, amounting to $3.62 billion in 2015 and comprising 23% of the Company’s total annual expenses. The Company accrues other operating costs in relation to the operation of its network of offices and facilities in the form of rent and utilities.

Revenue Streams

Southwest Airlines generates revenue through the operation of domestic and international airline services. Its 2015 revenue was divides as follows:

• Passenger Revenue, comprising revenue derived from the sale of domestic and international passenger air fares;
• Freight Revenue, comprising revenue derived from the Company’s provision of shipping and cargo services;
• Special Revenue, relating to a special revenue adjustment for the year; and
• Other Revenue, comprising revenue derived from the sale of and provision of ancillary services, such as early check-in and in-flight sales. Passenger revenue accounts for the vast majority of the Company’s total revenue, amounting to $18.30 billion of the Company’s total $19.82 billion in revenue for the year. Freight revenue amounted to $179 million, special revenue amounted to $172 million and other revenue amounted to $1.17 billion in 2015. More than 98% of the Company’s revenue is derived from its domestic operations.