Southwest Airlines Co. (LUV): history, ownership, mission, how it works & makes money (2024)

A Brief History of Southwest Airlines Co. (LUV)

Southwest Airlines Co., headquartered in Dallas, Texas, is one of the major airlines in the United States. It is known for its low-cost business model and exceptional customer service. The journey of Southwest Airlines began in the late 1960s and has evolved significantly over the decades.

1966-1971: Founding and Early Challenges

• In 1966, Rollin King, an airline industry consultant, and Herb Kelleher, an attorney, sketched out the idea of a low-cost airline serving Texas on a co*cktail napkin.
• Southwest Airlines was incorporated on March 15, 1967, but faced legal battles from existing airlines trying to prevent its operations.
• After several legal hurdles, Southwest commenced operations on June 18, 1971, with flights between Dallas, Houston, and San Antonio.

1970s: Expansion and Innovations

• By the mid-1970s, Southwest began expanding its service to more Texas cities and eventually to neighboring states.
• The airline introduced the ten-minute turnaround strategy to maximize the use of its aircraft and reduce costs.
• In 1978, the Airline Deregulation Act allowed Southwest to expand beyond Texas, setting the stage for national growth.

1980s: Going National

• Southwest went public in 1971 with the ticker symbol LUV, reflecting its Love Field roots and its customer-friendly service.
• Throughout the 1980s, Southwest rapidly expanded its route network, adding major airports across the United States.
• In 1987, it reported its first billion-dollar revenue year, showcasing its growing influence in the airline industry.

1990s: Profitability and Recognition

• Despite the airline industry facing significant challenges, Southwest maintained consistent profitability through a combination of low fares and high efficiency.
• Southwest earned numerous awards for customer satisfaction and operational excellence.

2000s: Continued Growth and Challenges

• Southwest continued to grow, with strategic acquisitions such as AirTran Airways in 2011, which helped expand its reach to new markets, including international destinations.
• During this period, the airline introduced new features like online booking and check-in.

2010s: Adapting to a Changing Market

• In 2014, Southwest finalized the integration of AirTran Airways, solidifying its position as a dominant low-cost carrier.
• The airline continued to innovate with the launch of in-flight Wi-Fi and expanded entertainment options.

2020s: Navigating Through the Pandemic

• The COVID-19 pandemic in 2020 posed unprecedented challenges to the airline industry. Southwest implemented rigorous health measures and adjusted its operations to navigate through the crisis.
• Despite these challenges, Southwest remained committed to its core values and customer-centric approach.

Southwest Airlines Co. continues to be a prominent player in the airline industry, known for its low-cost model, operational efficiency, and customer satisfaction.

Who Owns Southwest Airlines Co. (LUV)

Southwest Airlines Co. (LUV), one of the largest low-cost carriers in the United States, is a publicly traded company listed on the New York Stock Exchange (NYSE) under the ticker symbol LUV. The ownership of Southwest Airlines is distributed among various institutional investors, mutual funds, individual shareholders, and company insiders. Here are some key aspects of its ownership:

• Institutional Investors: A significant portion of Southwest Airlines' shares is held by institutional investors. These include pension funds, investment firms, and insurance companies, which collectively own a substantial share of the company's stock. Major institutional shareholders often influence company policies and strategic decisions.
• Mutual Funds: Various mutual funds also hold a considerable amount of Southwest Airlines' shares. These mutual funds typically invest on behalf of individual investors who seek diversified exposure to the stock market.
• Individual Shareholders: A portion of Southwest Airlines' ownership is held by individual investors. These can range from retail investors who purchase shares through brokerage accounts to employees participating in stock ownership plans.
• Company Insiders: Insiders, such as executives, board members, and key employees, own a fraction of the company's stock. Insider ownership is often seen as a positive indicator, reflecting the confidence of those closest to the company's operations.

Notable institutional investors in Southwest Airlines Co. include Vanguard Group, BlackRock, and State Street Corporation. These entities manage large portfolios and have substantial voting power in corporate governance matters. The distribution of ownership among these groups ensures a diverse and widespread shareholder base, contributing to the company's stability and growth potential.

Southwest Airlines Co. (LUV) Mission Statement

Southwest Airlines Co. (LUV) is renowned for its commitment to providing exceptional customer service and fostering a positive work environment. The company operates under a clearly defined mission statement that underscores its core values and business philosophy. The mission statement is as follows:

"The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit."

Southwest Airlines further elaborates on its mission with specific goals and principles aimed at different stakeholders:

• For Customers: Southwest Airlines strives to deliver exceptional customer service by ensuring that every interaction is characterized by warmth and friendliness. The airline is committed to offering low fares, reliable service, and a welcoming experience.
• For Employees: The company believes in treating employees like family, creating a workplace environment that encourages individual pride and fosters a strong company spirit. By doing so, Southwest aims to empower employees to perform their best and contribute meaningfully to the company's success.
• For Stakeholders: By focusing on these principles, Southwest Airlines ensures sustainable business practices that benefit all stakeholders, including shareholders, suppliers, and community partners. The mission emphasizes operational efficiency, financial prudence, and ethical conduct.

Southwest Airlines Co. maintains this mission statement as a guiding principle to shape its day-to-day operations and long-term strategies. This strong sense of purpose enables the company to maintain its competitive edge while delivering value to customers, employees, and stakeholders alike.

How Southwest Airlines Co. (LUV) Works

Southwest Airlines Co. (LUV) is known for its unique business model and customer-centric approach. Established in 1971, the airline has grown to become one of the largest domestic carriers in the United States. Let’s dive into the various components that make Southwest Airlines operate efficiently and successfully.

Operational Strategy

• Point-to-Point Model: Unlike the hub-and-spoke model used by many other airlines, Southwest primarily uses a point-to-point routing system. This minimizes travel time and reduces the need for passengers to make connecting flights.
• Fleet Uniformity: Southwest exclusively operates Boeing 737 aircraft. This uniformity simplifies maintenance and training, which helps in reducing operational costs.
• Turnaround Time: Known for its quick turnaround time, Southwest can have planes ready for their next flight in as little as 25 minutes. This efficiency allows for more flights per day per aircraft.

Customer Service

• No Assigned Seats: Southwest follows an open seating policy, allowing passengers to choose their seats upon boarding. This speeds up the boarding process and contributes to quicker turnaround times.
• Baggage Policies: Southwest is famous for allowing two free checked bags per passenger, unlike many other airlines that charge for checked luggage. This customer-friendly policy is a significant draw for travelers.
• Flexible Ticketing: The airline offers flexible ticketing options, including no fees for flight changes or cancellations, which strongly appeals to both business and leisure travelers.

Cost Management

• Fuel Hedging: Southwest has been a pioneer in fuel hedging, which helps the company manage and stabilize fuel costs, a significant part of airline operating expenses.
• No In-flight Meals: To keep costs low, Southwest does not offer in-flight meals but provides complimentary snacks and beverages instead.
• Efficiency Initiatives: The airline continually adopts various efficiency initiatives, such as optimizing flight paths and reducing paper use through electronic ticketing and mobile boarding passes.

Corporate Culture

• Employee Satisfaction: Southwest prides itself on maintaining a positive corporate culture, which includes treating its employees well. Happy employees are seen as essential to providing excellent customer service.
• Profit Sharing: The airline shares its profits with employees, fostering a sense of ownership and aligning employee interests with corporate goals.
• Community Engagement: Southwest actively participates in community service and charitable activities, further enhancing its corporate image and employee morale.

How Southwest Airlines Co. (LUV) Makes Money

Southwest Airlines Co. (LUV) is one of the major airlines in the United States, renowned for its low-cost business model and customer-friendly services. The airline generates revenue through a variety of streams, each contributing to its robust financial performance. Below is a breakdown of the key ways in which Southwest Airlines makes money:

• Passenger Revenue: The primary source of revenue for Southwest Airlines is the sale of airline tickets. The company offers competitive fares and a wide network of routes, attracting a large number of passengers annually. This revenue stream is further enhanced by the airline's unique "Bags Fly Free" policy, which differentiates it from competitors who often charge for checked baggage.
• Ancillary Services: While Southwest Airlines is known for its low-cost fares, it also generates substantial revenue through ancillary services. These include fees for additional services such as early check-in, upgraded boarding, and in-flight Wi-Fi. These optional add-ons provide significant revenue without the need to increase base ticket prices.
• Cargo Services: In addition to passenger services, Southwest Airlines also operates a cargo division. By transporting goods across its extensive network of destinations, the airline earns additional revenue. The cargo services include both small package shipments and larger freight loads, catering to a variety of shipping needs.
• Loyalty Program: Southwest's Rapid Rewards loyalty program is another important revenue stream. Members earn points through flights and partnerships with hotels, car rental agencies, and retail companies. These points can be redeemed for free flights and other rewards, encouraging repeat business and customer loyalty.
• Partnerships and Alliances: Southwest Airlines has various partnerships with other businesses, including hotel chains and car rental companies. These partnerships often involve revenue-sharing agreements and co-marketing initiatives that benefit both Southwest and its partners. Additionally, credit card partnerships generate revenue through sign-up bonuses and transaction fees.

These diversified revenue streams help Southwest Airlines maintain a strong financial position and support its ongoing operations and growth initiatives. By focusing on both passenger and ancillary services, as well as leveraging partnerships and loyalty programs, the company ensures a steady flow of income.