Southwest Airlines: Where's the Luv?

Abstract

This case details the history of Southwest Airlines (LUV) and emphasizes the benefits of a focused strategy. The case demonstrates how a competent service strategy together with operations efficiency can lead to profit, and it explains the concept of an integrated approach tying together the customer value proposition with operational and human resource capabilities. At the time of the case, LUV must consider whether or not it should change some of its operational tactics. Excerpts from a talk that LUV's former CEO, Herb Kelleher, gave at the Darden School of Business is available to complement the case. Please see Elliott N. Weiss, "Herb Kelleher and the Four Ps Toward High Performance: People, Purpose, Process, Philosophy (MEDIA)," UVA-OM-1173M. Excerpt UVA-OM-1571 Rev. Jul. 8, 2019 Southwest Airlines: Where's the Luv? Q4 2016 Gary Kelly, the CEO of Southwest Airlines (LUV), examined his computer screen once more, hoping to see something different. It was October 26, 2016, and LUV's stock price (NYSE: LUV) had just dropped more than 8.5% in premarket trading. After more than four decades of consecutive profitability, LUV's most recent earnings call had indicated a 4%-to-5% expected drop in Q4 revenue per available passenger seat mile. But as noted by industry analysts, many other airlines had seen a Q3 and Q4 boost “due to stronger September results, following a summer in which the Zika virus and terrorism deterred some passengers from flying.” On July 20, a major information-technology failure had put the entire operation into disarray. This failure had required several days to rectify, left tens of thousands of passengers stranded, and cost the company tens of millions of dollars. Shortly after the meltdown, four of the major employee unions (pilots, flight attendants, mechanics, and ramp agents) at LUV had issued a vote of no confidence in Kelly's leadership and in that of COO Mike Van de Ven. Both the pilot and flight-attendant unions had new contracts with LUV that were finally moving to a union vote; these might now be in jeopardy. Several hundred pilots had recently picketed both the board meeting in Chicago and Dallas Love Field, one of the main domiciles of LUV, for the first time in the airline's history. LUV sought concessions from flight attendants such as a longer duty day, but with the impact of the IT meltdown fresh in their memories, flight attendants were pushing back. . . .