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Southwest Airlines

Southwest Airlines, Inc., based in Dallas, Texas, is an airline in the United States. It is the third-largest airline in the world, as measured in number of passengers carried, and the largest with destinations exclusively in the United States. It is known as a "discount airline" compared to its domestic rivals and has been profitable every year since 1973.

Southwest Airlines was originally incorporated as Air Southwest on March 15, 1967 by Rollin King and Herb Kelleher. Some of the incumbent airlines of the time (Braniff, Trans-Texas, and Continental Airlines) initiated legal action, and thus began a 3 year legal battle to keep Air Southwest on the ground. Air Southwest eventually prevailed in the United States Supreme Court, which ultimately upheld Air Southwest's right to fly in Texas. December 7, 1970, the date of the Supreme Court decision, is considered by many to be the defacto beginning of deregulation in the airline industry.

In early 1971, Air Southwest changed their name to Southwest Airlines, and the first flight was on June 18, 1971. Its first flights were from Love Field in Dallas to Houston and San Antonio, short hops with no-frills service and a simple fare structure, features that became the basis for Southwest's popularity and rapid growth in the coming years.

The start of service in June 1971 was accomplished with three 737-200 aircraft that had been obtained from Boeing on favorable terms, and a fourth aircraft was obtained in September of 1971. The rest of 1971 and 1972 saw operating losses, and one of the four aircraft was later sold to Frontier Airlines of Denver and the proceeds used to make payroll and cover other expenses. Southwest continued to operate a schedule predicated on 4 aircraft but using only 3, and in so doing the "ten minute turn" was born, and was the standard ground time for many years. Southwest turned its first annual profit in 1973, and has done so every year since.

After the opening of Dallas/Fort Worth International Airport in 1974, Southwest was the only airline not to move to the new airport. When airline deregulation came in 1978, Southwest began planning to offer interstate service from Love Field, but a number of interest groups affiliated with DFW Airport, including American Airlines and the city of Fort Worth, pushed the Wright Amendment through Congress to restrict such flights. Southwest was barred from operating, or even ticketing passengers on flights from Love Field beyond the states immediately surrounding Texas. In 1997, the Shelby Amendment added the states of Alabama, Mississippi, and Kansas to the list of permissible destination states. Since late 2004, Southwest has been actively seeking the full repeal of the Wright Amendment restrictions. In late 2005, Missouri was added to the list of permissible destination states via a transportation appropriations bill. New service from Dallas Love to St. Louis and Kansas City quickly started in December of 2005. Southwest's efforts to fully repeal the Wright Amendment are slated to continue in 2006.

Despite the restrictions on its home base, Southwest proceeded to build a successful business on flying multiple short, quick trips into the secondary airports of major cities, using primarily only one aircraft type, the Boeing 737. Southwest remains the dominant passenger airline at Love Field, maintains its headquarters, hangars, and flight simulators adjacent thereto, and reflects its ties to Love Field in its ticker symbol (LUV).

Over time, Southwest has added improved 737 variants but has stayed within the Boeing 737 family to reduce operating costs.

In 2004, Southwest injected capital into ATA Airlines that (among other things) would have resulted in Southwest's 27.5% ownership stake in ATA upon their exit from Chapter 11 bankruptcy proceedings. Southwest also entered into a codesharing arrangement with ATA, which was Southwest's first domestic codeshare arrangement. (Some years earlier, Southwest had a short-lived codeshare arrangement with Icelandair at BWI.) In late 2005, ATA secured $100 million in additional financing from the firm of Matlin Patterson, and Southwest's original deal with ATA was modified such that Southwest no longer had the 27.5% stake (or any other financial interest) in ATA.

The experience of flying on Southwest is quite different from that of most other U.S. airlines. Tickets must be bought from the airline itself, and can't be purchased through a travel agent or through common online venues like Orbitz or Travelocity. The airline's tickets can be bought over the phone or online at the website which features Web only fare discounts. Extra Rapid Rewards (the airline's version of a frequent flier program) credits used to be awarded for online booking, but this policy was eventually terminated in early 2005. Customers are not assigned seats; rather, they are assigned to a "boarding group" depending on their check-in time (earlier check-ins get to board earlier), and are left to find their own seats on the plane. Meal service is less than on historically full service airlines, with shorter flights receiving just a single small snack and soft drink, and longer flights meriting a "Snack Pack" of prepackaged goods. In the post-9/11 era these meals in a bag typically exceed the food served on full-service airlines like United or American. Although there is no video entertainment, Southwest is known for colorful boarding announcements and crews that burst out in song.

For all the leanness in comforts, which helped it pass through the post-9/11 travel slump as one of the few profitable major American airlines, Southwest manages to maintain excellent customer satisfaction ratings. Its employees are generally well-known for their friendliness, which is often attributed to a unique "love-based" corporate atmosphere that made chairman and founder Herb Kelleher a celebrity in the business world. However, concerns attributed to labor unrest and complaints by the Transportation Workers Union (TWU) representing Southwest flight attendants were reportedly a factor in the recent resignation of Kelleher's hand-picked replacement as CEO. Jim Parker resigned in July 2004 and was replaced by Chief Financial Officer Gary Kelly. The President of Southwest is former corporate secretary Colleen Barrett, who has been with the company since day one. Southwest's CFO is Laura Wright.

Southwest has also been a major inspiration to other low-cost airlines, and its business model has been repeated many times around the world. Europe's easyJet and Ryanair are two of the best known airlines to follow Southwest's business strategy in that continent (though easyJet operates two different aircraft models today), while Canada's WestJet is using Southwest's modus operandi in that country. New Zealand's Freedom Air and Thailand's Nok Air are another examples of airlines that are based on Southwest's system.

One of the reasons for profitability is Southwest's reliance on fuel hedging. Almost since its inception, Southwest has purchased fuel options for years in advance to smooth out fluctuations in fuel costs. Southwest substantially increased its hedging in 2001 in response to projections of increased crude oil prices. The use of these hedges helped Southwest maintain its profitability during the aftermath of the September 11, 2001 attacks and the oil shocks related to the Iraq War and later Hurricane Katrina. As of 2005, Southwest is currently paying 50% of the market price for its fuel; however, that number will increase as hedges from 2001 and 2002 expire and new hedges at higher prices take effect. Southwest has hedges of varying percentages and prices in place through 2009.

Another basis for its profitability is that, since inception, Southwest has operated one model of aircraft, the Boeing 737, though it has operated with several variants of this model (it has occasionally used other Boeing models, but only on an occasional basis until a replacement 737 was purchased). The first deviation was a Boeing 727-200 series aircraft, N406BN leased from Braniff International Airways for a short time and used between Dallas and Houston in the late 1970s/early 1980s. In the mid-1980s, six 727-200s were leased from People Express as temporary lift until new 737-300 aircraft started being delivered. In the late-1980s, a few Transtar (nee Muse Air) DC-9's were used on Southwest Airlines routes shortly after the carrier agreed to be purchased by Southwest. The 1970s and 1980s also saw the temporary leasing of 737-200s from other operators such as Aer Lingus, TEA, and Continental. It has been argued that operating only one model of aircraft has allowed Southwest to operate more profitably than its competitors, which often operate with several aircraft models, since it needs to purchase and stock fewer replacement parts, ground support equipment, and other items necessary to maintain its fleet.

Southwest is the basis of the American version of the reality show Airline.

The success and profitability of Southwest's business model led to a common trend being named after the company: The Southwest Effect. Since Southwest's original mission in Texas was to make it less expensive than driving between two points (in the early 1970s, during the first major energy cost crisis in the U.S.), they developed a template for entering markets at rates that allowed the airline to be profitable, yet only on the basis of lean operations and high aircraft utilization. The key concept to the Southwest Effect is that when a low fare carrier (or any aggressive and innovative company) enters a market, the market itself changes, and usually grows dramatically. For example, when fares drop by 50% from their historical averages, the number of new customers in that market may not just double, but actually quadruple, or more. More on the origin of the term.

On April 4th, 2006, Southwest announced that it has plans to secure two gates at Washington DC's Dulles International airport. Gary Kelly, Southwest's Chief Executive Officer, had this to say "The sheer size and scope of the Washington, D.C. metro area makes Washington Dulles International Airport an exceptional market opportunity. Located in northern Virginia, Dulles will be a terrific complement to our Baltimore/Washington International Thurgood Marshall Airport (BWI) operation located near Baltimore, Maryland." Southwest has not announced how it will serve the airport, but is likely to face tough competition from United, Jetblue and United's Ted among other airlines.

Southwest is one of the few airlines to depart from the more traditional "Hub-and-Spoke" flight routing system. It still has notably large operations in certain airports. These include Baltimore-Washington International Thurgood Marshall Airport, Chicago's Midway Airport, Houston's Hobby Airport, Las Vegas' McCarran International Airport, Nashville International Airport, Oakland International Airport, Phoenix Sky Harbor International Airport in Phoenix, and San Diego International. Southwest also has large operations at Orlando International Airport and Tampa International Airport, where it handles a large amount of tourist traffic to various cities throughout the eastern United States. Currently, Southwest serves 62 cities in 32 states.

As part of its effort to control costs, Southwest tries to utilize secondary airports which generally have lower costs and are more convienent to travellers than the major airports at some destinations. Southwest flies to Fort Lauderdale-Hollywood International Airport in South Florida, the Love Field in Dallas, Hobby Airport in Houston, Midway Airport in Chicago, Illinois, BWI Airport near Baltimore, Maryland and Washington, DC, Oakland International Airport and Mineta San Jose International Airport in the Bay Area, rather than the more expensive Miami International Airport, DFW International, O'Hare International, and San Francisco International airports, respectively. Southwest does, however, fly to some larger airports in major cities, such as LAX, Phoenix, Philadelphia, and Pittsburgh. Southwest routes all New York area flights to Long Island MacArthur Airport. Southwest had pulled out of the Denver (Stapleton Airport) market in 1986 due to the high costs associated with ATC delays attributable to Stapleton's closely-spaced runways. However, Southwest began service to the new Denver International Airport on January 3, 2006 to Chicago Midway, Las Vegas, and Phoenix, with additional nonstop service to Baltimore/Washington and Salt Lake City beginning in early March.

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