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INFORMATION Institute of
SYSTEMS Technology
RESEARCH
Sloan School Cambridge
of Management Massachusetts
May 2007
Abstract: Southwest Airlines has grown from upstart to the largest U.S. airline in terms of
number of passengers flown while recording 34 consecutive years of profitability. Through most
of those 34 years, Southwest management emphasized high touch rather than automation as
critical to business success. Over time, however, Southwest employees introduced technology-
based innovations to support key processes, including the industry's first paperless ticketing
system and early entry into web-based applications. By 2002 then-CFO (and subsequently CEO)
Gary Kelly recognized that IT would be important to meeting the company's strategic objectives.
He initiated a business transformation that relied on building a strong IT foundation. This case
describes the IT and business changes Southwest introduced to help the company succeed in its
increasingly competitive environment.
14 Pages
Massachusetts Institute of Technology
Sloan School of Management
This case study was prepared by Jeanne W. Ross of the MIT Sloan Center for Information Systems Research and Cynthia M.
Beath of the University of Texas at Austin. This case was written for the purposes of class discussion, rather than to illustrate
either effective or ineffective handling of a managerial situation. The authors would like to acknowledge and thank the
executives at Southwest Airlines for their participation in the case study.
© 2007 MIT Sloan Center for Information Systems Research. All rights reserved to the authors.
passion for customer service, which emphasized ment, and radically changed its approach to IT
the importance of personal touch. Thus, South- investment and implementation. By early 2007,
west sometimes chose to distinguish itself from Southwest had succeeded in becoming an IT-
other airlines by not investing in technology: enabled company, but it was still very much in
the midst of driving benefits that would ensure
“Historically we prided ourselves on being
long-term success:
very innovative insofar as the airline business
is concerned, certainly insofar as customer “We definitely got way behind on the
service is concerned. But we never, never technology side, and we’re in a catch up
wanted to be on the forefront of technology.” mode, making really, really significant in-
—Colleen Barrett vestments right now, to add more func-
President and Corporate Secretary tionality and honestly get our systems to a
But as technology matured and Southwest grew, point where we can react more quickly.”
the logistics of operating a big, highly integrated —Laura Wright
company forced a growing dependence on IT. In SVP, Finance and CFO
1989, Gary Kelly became Southwest’s CFO and
Background and History
started looking aggressively for ways IT could
improve efficiency and lower the firm’s cost Southwest Airlines began carrying passengers in
structure. By 2007, Kelly was CEO and 1971 between Dallas, Houston, and San
Southwest Airlines had found that technology Antonio. From the start, the business strategy
could lower cost without compromising cus- was to offer frequent, conveniently timed flights
tomer service: and low fares on short-haul routes. Restricted by
the 1979 Wright Amendment from flying out of
“I think in many cases we’ve got the best of Dallas to non-neighboring states,3 the airline
both worlds, where we’ve enhanced cus- nonetheless grew both organically and by
tomer service through automation, and acquisition so that by the end of 2006 it served
we’ve also lowered our costs through 63 cities in 32 states. In 2006, Southwest’s 482
automation. And that’s just a grand slam aircraft carried more than 95 million passengers
homerun. It is really a joy to see how, in a on more than 3200 daily departures. Profits
twenty-year time horizon, we’ve gone from were $499 million on revenues of $9.1 billion.
being a really low tech company to one
that’s on the cover of Business Week.2 We’re Southwest’s history of profitability was partly
one of the twenty-five most innovative due to having the lowest operating costs, on a
companies in the world and we do have seats-per-mile basis, of all the major airlines.
automation.” —Gary Kelly Several factors contributed to their low-cost
CEO structure, including the use of a single aircraft
type, a high-utilization point-to-point route
Going forward, Southwest intended to seize structure, and a fuel hedging program that
additional opportunities created by technology protected the company from the full impact of
to lower costs and enhance customer service. In rising fuel costs.4 Management also attributed
addition, management wanted to increase its its low-cost advantage to hardworking, inno-
ability to respond to unexpected business vative, highly productive employees. South-
conditions and market challenges. Toward that
end, management had reorganized the Tech-
nology staff, simplified its technology environ- 3
The Wright Amendment was intended to protect the
Dallas-Fort Worth airport. Restrictions were being eased
out between 2006–2014.
2 4
Business Week noted that Southwest was “a whiz at Fuel hedging saved the airline $675 million in 2006, but
wielding operational improvements to outfly its compet- fuel costs were consuming a growing share of operating
itors.” costs (26% in 2006, net of hedging gains).
5
In March 1995, the marketing department
Facts and figures in this paragraph and the prior one are launched Southwest.com. A year later South-
from Southwest’s 10K report dated February 1, 2007.
6
west became the first airline to sell tickets on its
Complaint statistics from the Department of Transpor- website. Offshoots of Southwest.com for busin-
tation’s Air Travel Consumer Report.
$600,000 100
Net Income (In Thousands)
$500,000 90
$300,000 70
$200,000 60
$100,000 50
94
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01
02
03
04
05
06
19
19
19
19
19
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20
20
20
20
20
20
20
Year
Executive Chairman
Executive Chairman
Herb Kelleher
Herb Kelleher
Vice Chairman
Vice Chairman
& Chief
& Chief Executive
Executive Officer
Officer
Gary Kelly
Gary Kelly
President
President
Colleen Barrett
Colleen Barrett
Executive Vice
Executive Vice President
President Executive Vice
Executive Vice President
President
&& Chief
Chief of
of Operations
Operations Law, Airports
Law, Airports &
& Public
Public Affairs
Affairs
Mike Van
Mike Van de
de Ven
Ven Ron Ricks
Ron Ricks
Executive Vice
Executive Vice President
President
Senior Vice
Senior Vice President,
President, Finance
Finance
Strategy, Procurement
Strategy, Procurement & &
&& Chief
Chief Financial
Financial Officer
Officer
Technology
Technology
Laura Wright
Laura Wright
Bob Jordan
Bob Jordan
Vice President
Vice President Vice President
Vice President
Internal Audit
Internal Audit Revenue Management
Revenue Management
Lori Rainwater
Lori Rainwater Keith Taylor
Keith Taylor
Vice President
Vice President
Schedule Planning
Schedule Planning
Pete McGlade
Pete McGlade
Vice Chairman
Vice Chairman
& Chief
& Chief Executive
Executive Officer
Officer
Gary Kelly
Gary Kelly
President
President
Colleen Barrett
Colleen Barrett
Executive Assistants
Vanessa Rowland
Vickie Shuler
Senior Vice
Senior Vice President
President Vice President
Vice President
Corporate Communications
Corporate Communications Customer Relations
Customer Relations && Rapid
Rapid Rewards
Rewards
Ginger Hardage
Ginger Hardage Jim Ruppel
Jim Ruppel
Vice President
Vice President Vice President
Vice President
Labor && Employee
Labor Employee Relations
Relations Marketing, Sales
Marketing, Sales &
& Distribution
Distribution
Joe Harris
Joe Harris Kevin Krone
Kevin Krone
Vice President
Vice President Vice President
Vice President
People && Leadership
People Leadership Development
Development Reservations
Reservations
Jeff Lamb
Jeff Lamb Ellen Torbert
Ellen Torbert
Director
Corporate Security Executive Office
Vance Toler
Senior Manager
Director, Culture Activities & Director Proactive Customer Service
Headquarters Distribution Services Customer Communications Communications *
Sunny Abercrombie Pat Edwards
Manager
Administration
Director Jon Shubert
Internal Customer Care
Manager
Cynthia Young Special Projects
Debbie Neel
* Reports to Operations Coordination Center (Greg Wells), but it will continue to be a liaison
with Executive Office (Colleen Barrett), especially as to Proactive Customer Service Issues.
Vice Chairman
Vice Chairman
& Chief
& Chief Executive
Executive Officer
Officer
Gary Kelly
Gary Kelly
Executive Vice
Executive Vice President
President
Strategy, Procurement,
Strategy, Procurement, && Technology
Technology
Bob Jordan
Bob Jordan
Vice President
Vice President
Technology &
Technology & Chief
Chief Information
Information Officer
Officer
Jan Marshall
Jan Marshall
Executive Assistant
Liz Bratcher
Vice President
Vice President
& Chief
& Chief Technology
Technology Officer
Officer
Kerry Schwab
Kerry Schwab