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31 AD Exhibit 1A Revenue Penge les PS 1989-2011 200 for Major USA Al Aupors Year American America West Continental Delta Northwest 1364 1643 125.4 1641 1224 131 1184 1394 1384 2004 1302 2000 2002 2001 2000 1999 1998 2010 2009 2008 2007 2006 2001 130.3 121.37 1062 1166 11082 108.9 1997 307 1966 1995 1994 ME 1993 121 1992 1046 1023 12.3 173 235 343 233 21.3 19.9 191 18.1 123 164 291 153 113 123 112 114 778 COR 814 763 MA 434 ris 148 624 14 31 443 376 318 *** 38.1 40.1 1003 1067 1013 MA 1017 163 FOR 9153 113 107 1048 100 997 812 130 82.9 FOR certified by the FAA by 2004 had shut down. Most of the new airlines competed with limited roiectures sal lower fares than the major airlines. The new airlines created a second tier of service providers that seved co sumers billions of dollars annually and provided service in markets abandoned or igond by major carriers Although deregularion fostered computation and the growth of new airlines, it also created a regional disparity in ticket prices and adversely affected service to small and communities Airline workers generally sof feed, with inflation-adjusted average employer wages ing from sea is a much lower levels over the subsequent decades. Abour son employees About soon airline industry were laid off in the Suctivity in the early yox, while of the remaining empleys 4% during while pro the same period ings were used to diminish the role of wions and reduce variety of cas, banky wnized wags Bewn and US p ger and cargo il fled for bunky- them in soo 629 714 729 726 753 754 MI 721 733 792 143 MA 721 647 426 FWS S47 Southwest TransWorld United 81.9 173 78.3 100.4 746 100.5 737 1100 723 1174 673 603 515 4 453 443 424 Ma 316 264 27,3 235 199 16.3 200 213 201 245 213 201 248 228 292 1143 1044 1064 1166 136.9 1255 1244 1214 1082 BLY US Airways 607 SAP 378 606 415 374 40.3 373 40 44 469 41.3 414 417 35.5 314 382 MI 384 wine workers at American Dela and other major air lines were forced to accept pay cats of up to y5%. Industry Economics About 8 of aline operating costs are fixed or sem variable The few variable costs per passenger indeded travel agency commons, food costs, and sicketing fees. The operating costs of an sirline Right depended primarily on the distance traveled, not the umber of pages on board. For example, the crew and g stall sam were demind by the type of the penger load Theor cred al C-300 established we fixed. Bece of s high drdoped sphed sur souls expacity wilaan, know was called by dding RPM (e per mile-the number of pangers red mailed by the dance by AS ble
(210 Exhibit 18 Operating evenues in millions of du 1992-2015 Anes Year American America West Continental 2011 21,908 2010 22,130 2000 2008 21210 2001 22801 2006 32493 2005 2017 3364 FACE 2001 17AC 2000 HATI 2001 BELL 45639 2000 183117 1900 1,000 3990 5629 1997 15.350 TPM HIN 1995 35415 34311 147 THA DMC) INITI act ACE 1.391 2482 2221 1.021 2015 2.300 2104 DON'T LMY 1732 LSA MIKK 1332 130 30635 11.30 1015 3,010 was willen was yulds nd penger pd was p 11.30 by then the sur buon apport sporting sa gy beyond the end of the laga 166 20373 32 78258 8343 12.330 12.555 16112 1234 1851 15.154 7,333 14303 SIM 1241 1312 32211 KOND VERST ure 7823 3129 964 7399 ANI LAK di www. JAR 1400 14304 13,38 12.55 On 1134 LOM 1239 11AN scheduled divided by The higher the ticket pris, the hear the d Algh muting opting On each fight by one of the main ung Southwest and a few other cand ically a dime categories of fares. The ai hical o parte individuales thers uned this type of analysis each fare level All ping practice, kwa "yeld man Hele mine how many se These pabled the series to manage thi seatives and the prices paid thes. The each fight ther De Rethwest Southwest Trans World United 75271 11635 21,155 313M 12,300 14682 18.350 1813 d stree n c typ WELL pre the 620 PICK 4309 RAB HELS 7.360 190K 7384 6.330 1937 1527 3.355 Seso UN 4104 3817 1407 LIFT 2017 2,060 LARS LIVE: SIST BREW 1.330 LIM 3570 20,237 20049 38334 12,304 INVI 15.300 13910 18,331 17347 17318 1309 1299 1.330 12335 3,354 16.317 1201 SURVE art 14,354 12.725 umber of seats are for sale multiplied by the deesday The airline industry's extremely high fa tan down one of the worst net operating margin p med ainst other industries Autions spaced in profitability by indotries such a khmer products, and all and p en years a carte or ancillary revenues har und change lees had become incre most sirlines Some les costines, ch 1 Allega, generated more than 1% of ion ancillary lees. In contrast to most of t thwest did not charge for checked bags Pirk US Airlines, a typical route w go Nath's Debu take a second flight 20 82 116 ww 8.35 8.50 7204 SND 6379 662) 6230 in their operations around The spokes d pas central airport-the heb would mand s additional hubs or the example Em Phomu E po
Ce Southwes Establishing a major hub in a city like Chicago or Atlanta required a huge investment for gale acquisition and terminal construction. JetBlues new facility at JFK in New York opened in soo9 and cost about shoo million Although hubs created inconveniences for travelers, hub & Environmental Regulation. Following actions in systems were an efficient means of distributing services Europe, various US groups were advocating new across a wide network. The major airlines were very protective of their so-called "fortress" hubs and used & Open Skies Agreement. Legislation allowing greater standards and taxes on airline emissions the hubs to control various local markets. For example Northwest (now Delta) handled about Bo% of Detros passengers and occupied nearly the entire new Detroit terminal that opened in 2002. And. Northwest's deal access to US markets by non-US. carriers was espected to increase competitive pressure. with the local government assured that it would be the Southwest Airlines Background only airline that could have a hub in Detroit. When Southwest entered the Detroit market, the only available gates were already leased by Northwest Northwest sub leased gates to Southwest at rates 8 times higher than Northwest's costs Southwest eventually withdrew from Detroit, and then re-entered one of only three markets Southwest bad abandoned in its history (Denver and Beaumont Texas, were the other two Southwest real entered Denver in 2006) Recent U.S. Airline Industry Performance Despite steadily growing customer demand, the airline industry always seemed to be one recession away from crisis In 2013, the maje airlines were on track to be profitable, a marked contrast to the heery losses of t few years earlier (with the exception of Southwest The cinisuing consolidation in the industry was expected to lead to lower operating cds and higher Aher the September 14, 2004, teriat stads domestic sirlines lost about so billim. The conting specter of terrorism cast a long shadow on the global siline industry in the United States, passengers were frustrated by increasingly more in security pro cedures Volatile fad cs were a contant uncertainty and tew entrais continued to put pressure on the incumberes Other peers n the industry included Castomer Dissatisfaction with Airline Service Service problems were leading to call lation of sine competits practions Aircraft Safety Main The alat pepulation migh and eventud sinca replace The son of wricher geskokles planes paced new un operates of der Debt Servicing The sine intry's dead de US dry g C-311 4 Air-Traffic Delays. Increased air-traffic control delays caused by higher travel demand and related airport congestion were expected to negatively influ ence customer satisfaction. when a dient named Rollin King proposed starting a In 1966, Herb Kelleher was practicing law in San Antonio short haul airline similar to California-based Pacific Southwest Airlines. The airline would fly the Golden Triangle of Houston, Dallas, and San Antonio and, by and King incorporated a company, raised initial cap staying within Texas, avoid federal regulations. Kelleher and filed for regulatory approval from the Texas Aeronautics Commission. Unfortunately, the other Texas-band airlines, namely Branil, Continental, and Trans Texas (later called Texas International), opposed the ides and waged a battle to prohibit Southwest from Sing Kelleher argued the company's case before the Texas Supreme Court, which ruled in Southwest's favor The US Supreme Court refused to hear an appeal filed by the other airlines In late 1970, it looked as if the com peny could begin flying Southwest began building a management team, and the purchase of the surpla Boeing 737 was negoti and Meanwhile, Beanif and Texas International con and their efforts to prevent Southwest from flying The underwriters of Southwest's initial public stock offering withdrew and a training onder against the company was obtained two days before its scheduled igralight Kelleher again argued his company's case bees the Texas Supreme Court, which ruled in Sadwer for a cond time lifting the restraining west Airlines began flying the next day. Jute of, 1674" When Subwet began ying de firm bad three aircraft and as employees Initial thee Texas cities out of Dulu older Love Field airport and Hobby Airport, both of which were deser dan the ar international airports the beginning, original fights were and in het pants. By the en had eed to khakis and polo As The lar de wple of the line f Flamboyan wolled by
C-212 the outset and became the company's ticker symbol on Wall Street. Southwest management quickly discovered that there were two types of travelers: convenience. time-oriented business travelers, and price-sensitive leisure travelers. To cater to both groups, Southwest developed a two-tiered pricing structure. In 1972. Southwest was charging s20 to fly between Houston, Dallas, and San Antonio, undercutting the sax fares of the other carriers. After an experiment with sso fares Southwest decided to sell seats on weekdays until 700p.m. for $26, and after 7:00 pm and on weekends for sis In response, in January 1973. Braniff Airlines began charging siy for its Dallas-Houston Hobby flights. This resulted in one of Southwest's most famous ads, which had the caption. "Nobody's going to shoot Southwest out of the sky for a lousy sy Southwest offered trav ders the opportunity to pay sty or s26 and receive a free bottle of liquor. More than 5% of the passengers chose the s36 fare and Southwest became the largest distributor of Chivas Regal scotch whiskey in Texas In 1975. Branill abandoned the Dallas-Houston Hobby route. When Southwest entered the Cleveland market the unrestricted one-way fare between Cleveland and Chicago was so on other carriers: Southwest's fare was ssa. One of Southwest's problems was convincing passengers that its low fares were not just introductory promotion but regalar fares Southwest's Operations Although Southwest became one of the largest airlines is the United States, the firm did not deviate from its initial focus primarily short-haul (less than soo miles) point to point flights, a flent consisting only of Boring 7378, high frequency flights, low fares, and no inter national flights (excluding the AirTran soule yem which included flights to various international loca Bona In 2012, the average Southwest one way fare was 114543 Southwest was the only large airline to operate without major hubs, shough cities such as Phoenix, Houston, Chicago, Dallas, Denver, and Las Vegas were increasingly becoming important trans point for Southwest trips. For example, there were ph daily departures from Chicags Southwess busiest airport Pass to pois service pled maximi for passengers who wanted to fly bet cibut insufficient demand and make such tights economically unlessible. For that reason, the hub and spoke appmach was grally to g PanCar Shade savings for airlines through operational efficiencies However, Southwest saw it another way: hub-and-spoke arrangements resulted in planes spending more time on the ground waiting for customers to arrive from con necting points Turnaround time-the time it takes to unload a waiting plane and lead it for the next flight-was about 15 minutes for Southwest, compared with the industry average of 45 minutes. This time savings was accom plished with a gate crew 50% smaller than other airlines Pilots sometimes helped unload bugs when schedules were tight. Flight attendants regularly assisted in the cleanup of airplanes between flights Relative to the other major airlines, Southwest had a no-frills approach to services no reserved seating or meals were offered. Seating was first come first served. As to why the airline did not have assigned seating Kelleher explained: It used to be we only had about four people on the whole plane, so the idea of assigned seats just made people laugh. Now the reason is you can turn the airplanes quicker at the gate. And if you can turn an airplane quicker, you can have it fly more routes each day. That generates mone nevenor, so you can offer lower fores Unlike some of the major carriers, Southwest rarely offered delayed customers a hotel room or long distance telephone calls Southwest had only a limited participa tion in computerized reservation andens, preferring to have travel agents and customers book flights through its reservation center Southwest was the first national carrier to sell seats from an Internet site and was the first airline to create a home page on the Internet. In the ath quarter of 2013. Bes of passenger sevenues were booked via southwest.cms. The company estimated that the online ticketing cost was as per booking and so-8 with a travel agon. Southwest was also one of the first airlines to use ticketless travel, ofering the service first in Southwest was the only major airline with a frequent dyer program based on dollars spent by a passenger not miles flows Over the years, Southwest choice of markers bed in significant growth air travel at those locations be Texas traffic between the Rio Grande Valley (Harlingen and the Golden Triangle gre fm 3.000 325.000 within months of Southwest emering the market Within a year of Sowbwe's serial, the Oakland Burbank te became the ath largest passenger market pfum cyth The Chicago Lode market tripled in yo days er Sound began Bying that Tables a comparison of Southwe
Ce 1 Sten Table 1 Southwest Across the Years Size of Fleet End of Year Number of Employee Number of Passengers Carried Number of Cities Served Number of Trips flown Total Operating Revenue Net Income Mon www 1971 195 108.554 Recent Service Changes In 2002. Southwest made various changes to its service offerings, including AST 2.33 -38 Three new fare categories, including higher tier fares for business travelers. New boarding processes for example, travelers could pay extra to bosed first Allowing castomers with high status in the frequent flier program to board first Increased emphasis on corporate sales Promoted the two-bags-fly-free campaign aggres sively ne degete The rationale for the 2007 changes was explained by CEO Gary Kelly 1432 164 43 We've always been a business traveler's airline the e time, over 17 years we habil done much so try le cas tomize the travel experience for the varieties of customer meels that we had. It was one sef-all, and in today's competitive environment we felt that was not the best way to remain on top. We had the desire to improve our overall customer experience for the business inve Is a Southwest launched its new Rapid Rewards fre quent flyer pengram. Under the new programs, members earned points for every dollar spent, whereas under the prior program customers earned credits for fight segments down. The new frequent per program was Table 2 Opening Da 1482 w * 1999 306 26005 $2,400,000 55 602,578 UN 433 14.M 2007 $15 34379 101,347,300 54 designed to increase revenue by (a) bringing in new customers, including new Rapid Rewards members, as well as new holders of Southwest's co-branded Chase customers and (c) strengthening Rapid Rewards hotel, Visa credit card (b) increasing business from existing rental car, credit card, and retail partnerships PE 199 7,309 645 Southwest's Performance Southwest bucked the airline industry trend by earn ing a profit for 40 consecutive years. Among the major airlines, Southwest consistently ranked first in fewest over all customer complaints as published in the Department of Tramportations Air Travel Consumer Report. For example, in December ania, there were i complaints reported against Southwest and so against United In Zapas amo airline survey Southwest won awards for p website best consumer on-time estimates-domestic best check in experience best value-domestic and best luggage policy-notic 1240 #13 42 The average Southwest light had a duration of about one hour and 15 minutes and a length of 64 miles. This was up from a miles in 1999 and in 1996 Each plane few about seves flights daily almost twice the industry averags Planes were used an average of 5 hours a day, about as more than major carriers like Delts and United Tables shows that Southwes per ailable mile was lower than the legacy United ALIN stan 1734 15 2012 404 44.000 105.000.00 W >1204300 17,100 421 14 BUN 43 MS
C-214 Exhibit 2 Operating Margins for Major US Airlines 16% 12% 0% 4% 0% 45 -0% -12% -16% -20% ✓ 2002 2003 2004 2005 2006 2007 2008 2009 2010 Dan Lage v12 210.com carriers (American, Delta, US Airways, United) but not kwer than seme of the newer and smaller carriers such as letblue (one of the reasons for JetBlue's lower cost per ASM was its longer average flight length-1085 miles at lesblue). Southwest's on-time arrival and departure record, for many years near the top in the industry, had declined in recent years. The average age of the Southwest fort was it years, the lowest for the major carriers. Employee cost per available seat mile was lower than major competitors Chut not lower than some smaller carriers like Spirit and Allegiant Exhibita a so provide data on the major US compet ors for the period Exhibit 2-Operating margins Southwest had the highest margin position until 2007 Exhibit 3-Average revenue passenger miles (RPM) per passenger: Southwest has the lowest in all years Exhibit-Passenger yield ipassenger neveu per RPM Southwest is the highest Exhibity-Load factor: Southwest is the lowest in all years Exhibi-Onts per available wat mile Southwes in the lowest in all years. Exhibis 7-Usit costs per available seat mile excluding labor cost Southwest in the lowest in all year -American United Continental Northwest -Delta --Southwest -US Airways Fate Studies Exhibit -Labor cost per available seat mile. Southwest cost moved from the lowest in 2003 to the second highest in 2003, where it has remained. Southwest also has the highest wage/salary per employee. Exhibit 9-Employees per aircraft Southwest is the lowest in all years. This is a function of both labor productivity and aircraft size: Southwest has, on average, smaller aircraft than the legacy carriers Exhibis 10-Net debt Southwest is the lowest in all years. Southwest accomplished its strong record by challeng ing accepted norms and setting competitive thresholds for other airlines to emulate. The company established numerous new industry standards. Southwest few more passengers per employee than any other major airline while at the same time had the fewest number of employ es per aircral. Southwest maintained a debe-to-equity ratio much lower than the industry average and was one of the few airlines in the world with an investeent grade credit rating The company had never curtalled servic because of a union strike and we passenger had ever did because of a safety incident Southwest had a fleet of 60s Boeing 737 upr in 2005, 106 in 1990, and 25 in Southwest abo had a Boeing 77s from the AirTran deal, which were to be so of the sole aircraws owned and the der lese
C Herb Kelleher Herb Kelleher was CEO of Southwest from systo 2001. In 2001, at age 71, Kelleher stepped down as CEO but remained Chairman until 2008 when he resigned from the Board of Directors. Kelleher's leadership style com bined flamboyance, fun, and a fresh, unique perspective. Kelleher played Big Daddy-O in one of the company videos, appeared as Elvis Presley in in-flight magazine advertisements, and earned the nickname "High Priest of Ha-Ha from Fortune Although Kelleher was uncon ventional and a maverick in his field, he led his company to consistently new standards for itself and for the indus try. Sincerely commined to his employees, Kelleher gen erated intense loyalty to himself and the company His ability to remember employees' names and to ask after their families was just one way he earned respect and trust. At one point, Kelleher free his salary for five years in response to the pilots agreeing to do the same. Often when he flew, Kelleher would help the ground crew unload bags or help the flight crew serve drinks. His humor was legendary and served as an example for his employees to join in the fun of working for Southwest He was called 's visionary who leads by example-you have to work harder than anybody else to show them you are devoted to the busines Ahhough Kelleher tried to downplay his personal significance to the company, especially when he gave up the CEO position in 2001, many analysts following Southwest credited the airline's succes to Kelleher's unorthodes personality and engaging management style. As one analyst wrote. "The old-fashioned bond of loyalty between employees and company may have van ished ebewhere in corporale America, but it is stronger than ever at Southwest From October 1 to December 2001 Kotlebes, CEO James Parker and COO Colleen Tartt voluntarily dinghed their salaries. Gary Kelly Soudwe former CFO became CEO in 2004 The Southwest Spirit the airline Customer service far beyond the semi industry was not unexpected at Southwest and had its ume-Pively Outrageous Service Som ples of this service included a ge watch a dog la Chuahua) for two weeks when an ping Acapulco-bound passenger showed up at the last min without the equired dog crate an Autin penger who missed action to Houston, where he was to have a kdy mnplant operation was down there b Southwest plot in bi priate plane Another passenge an ciderly woman fying to Phoenta lor cancer treatment began crying because she had no family or friends at her destination. The ticket agent invited her into her home and escorted her around Phoenix for two weeks" C-219 Southwest Airlines customers were often surprised by Southwest's Spirit. On some flights, magazine pictures of gourmet meals were offered for dinner on an evening flight. Flight attendants were encouraged to have fun songs, jokes, and humorous flight announcements were common. One flight attendant had a habit of popping out of overhead luggage compartments as passengers attempted to stow their belongings, until the day she frightened an elderly passenger who called for oxygen. Herb Kelleber once served in-flight snacks dressed as the Easter Buriny Intense company communication and camaraderie was highly valued and essential to maintaining the esprit de corps found throughout the firm. The Southwest Spirit, as exhibited by enthusiasm and extroverted personalities, was an important element in employee screening conducted by Southwest's People Department Employment at Southwest was highly desired. In 2012. Southwest received 14845 job applications. Once landed, a job was secure. The airline had not laid off an employee since 1971 (the company had used some volun tary employer buyouts). Historically, employee turnover Sovered around 7%, the lowest rate in the industry. In 30. Southwest had about 46.000 employees in 1990. Southwest had 4,600 employees and less than 6,000 in 1983 During initial training periods, efforts were made to share and instill Southwest's unique culture New employee orientation, known as the new-hire cel- ebration, has in the past included Southwest's ver- son of the Wheel of Fortuar game show, scavenger bunts, and company videos, including the Southwest Airlines Shuffle in which each department intro deced itself, rap style, and in which Kelleher appeared Big Daddy O. To join the People Department (Le Human Resources), employees required frontline cas tomer experience Advanced employer training regularly occurred at the University of People at Love Field in Dallas Varios classes were offered, including team building leadership and cultural diversity Newly promoted supervisors and maniers ended a three- . day class called with Integrity Each dep "Leading training dson, focusing on department also had it its own of the technical k"Walk Mile Day' encouraged employees from aspects Allere departments to experience firsthand the day to day activities of their on workers. The goal of this pro gram was to promote respect for fellow workers while increasing wareness of the company
C-220 Employee initiative was supported by management and encouraged at all levels. For example, pilots looked for ways to conserve fuel during flights, employees proposed designs for ice storage equipment that reduced time and costs, and baggage handlers learned to place luggage with the handles facing outward to reduce unloading time. Red hearts and Luv were central parts of the internal corporate culture, appearing throughout company fit- erature. A mentoring program for new hires was called CoHearts. "Heroes of the Heart Awards" were given annu- ally to one behind-the-scenes group of workers, whose department name was painted on a specially designed plane for a year. Other awards honored an employee's big mistake through the "Boner of the Year Award. When employers had a story about exceptional service to share, they were encouraged to fill out a "LUV Report" Southwest placed great emphasis on maintain- ing cooperative labor ndations 82% of all employees were unionized and represented by si different unicos Southwest pilots belonged to an independent union and not the Airline Pilots Association, the union that represented more than 60.000 pilots. The company encouraged the unions and their negotiators to conduct employee surveys and to research their most important issues prior to each contract negotiation. At its 1994 con- tract discussion, the pilots proposed a 10-year contract with stock options in lieu of guaranteed pay increases over the first five years of the contract. In 1974. Southwest was the first airline to introduce employee profit sharing Through the plan, employees owned about son of the company's stock Herb Kelleher summed up the Southwest culture and commitment to employees We don't use things like TQM. It's just a lot of people taking pride in what they're doing. You have to recognize that people are still the most importent. How you treat them determines how they treat people on the side. I give people the license to be themselves and motivate others in that way. We give people the opportunity to be a maverick You don't have to fit in a constraining mold at work-ou can have a good time. People respond to that Southwest Imitators Southwests strategy spawned sumorous imitators, mo of which failed. Two of the more succesul start-up firms, Midwest Express and America Wint, both went through Chapter is bankruptcy proceedings Vallet was grounded after its May 1996 crash in the Florida Everglades, reemerging a year later as AirTran PC Stude The major airlines tried to compete directly with Southwest. The Shuttle by United, a so-called air- line within an airline, was started in October 1994. United's objective was to create a new airline owned by United with many of the same operational elements as Southwest a fleet of 737s, low fares, short-haul flights, and less-restrictive union rules. United saturated the West Coast corridor with short-haul flights on routes - such as Oakland-Seattle, San Francisco-San Diego, and Sacramento-San Diego. The Shuttle was unable to achieve the same level of productivity as Southwest, and in 2001 United discontinued Shuttle service and folded the remaining flights into its regular service. US Airways did the same with its Metrojet discount service. In 2003. United started a new discount carrier called TED Some of the attempts to imitate Southwest were almost comical Continental Lite (CALite) was an effort by Continental Airlines to develop a low-cost service and revive the company's fortunes after coming out of bankruptcy in April 1993. In March 1994. Continental increased CALite service to 875 daily flights. Continental soon encountered major operational problems with its new strategy. With its fleet of 16 different planes, mechanical delays disrupted turnaround times. Various pricing strategies were unsuccessful. The company was ranked last among the major carriers for on-time service, and complaints soared by 40%. In January 1995. Continental announced that it would reduce its capacity by sors and eliminate 4000 jobs. By mid-1995. Continental's CALile service had been largely discontin wed. In October 1995. Continentals CEO was ousted In East Asia in 2013, the airline-within-an-airline strategy was being used by many of the large carriers of competing against the many new start-ups in that such as Simpspore Airlines and Thai Airways as a means mpion A Successful Start-Up: JetBlue Airways Morris Air, petersed aher Southwest, was the only air line Southwest had acquired. Prior to the acquisition Morris Air Gew Boeing 737s on point-to-point routes operated in a diffione part of the US than Southwest and was profitable When Morris Air was acquired by Southwest in December 1993 sewn new markets were added to Southwest's system. In 1998, Morris Air's former president, David Neeleman, announced plans Airways new airline based at New York's IFK Airport had a cessful IPO in April soos with the ring on the first day of trading letblue had
C 16 SA geographically diversified flight schedule that included both short-haul and long-haul routes. Although JetBlue was viewed as a low fare carrier, the airline emphasized various service atributes, such as leather seats, free LiveTV (24-channel satellite TV service with program- ming provided by DirecTV) and preassigned seating The AirTran Deal In 2013, blue served more than 75 cities in the United States, Mexico, the Caribbean, and South America with more than 15.000 employees. Jet Mac had a fleet of 127 Airbus Apso aircraft and s4 Embraer go regional jet aircraft JetBlue revenue in 2012 was so billion, about one third that of Southwest. The company was profitable in the three years sose through 2012 In September 2010, Southwest announced that it would buy AirTran Airways for s4 billion. The acquisition would give Southwest access to more than jo new mar lets, including Atlanta and several tourist destinations in Mexico and the Caribbean. The deal strengthened Southwest's position in the Southeast and on the East Coast, AirTran had a lower cost structure than Southwest and integrating AirTran into Southwest's operations and culture could prove challenging Most of Air Tran's fleets were Boeing 7s, whereas Southwest only flew 737 AirTran had international routes and offered first-class scats Complicating the integration would be Southwest limited experience with acquisitions Southwest Expansion Southwest grew steadily over the years but the growth was highly controlled. New airports were carefully selected and only a few new cities were added each year As Kelleher wrote to his employees in 1993. Southwest Perhaps the most difficult challenge would be emar has had more opportunities for growth than it has ng that the acquisition did not change or weaken the airplanes. Yet, unlike other sirlines, it has avoided the Southwest culture. According to Southwest's pilots trap of growing beyond its means. Whether you a talking with an officer or a ramp agent, employees j on pesident, "The Achilles heel of this transaction is bour r company will be able to maintain our culture. don't seem to be enamored of the Mes that bigger ind op dive for the next 40 years in 10, the inte gration was well under way and Southwest forecasted pre-talynergies from the deal of $400 million in the current local year better In October 1996, with the initiation of lights to Providence, Rhode hland Southwest end the northe market. The entry into the northeast region of the US was in many respects, a logical move for Southwest The north at was the mot densely populated as of the country and the only maje region where Southwe did not com pete. New England could provide a valuable of pas sengen so Floridas warmer winter dimns South ery into Floride was esconding initial estimates Despite the large potential market, the more wered & new set challenges for Southwest Airport congestion and air traffic-cosmd delays could wat efficient operations, longing trend pre airpon gates and weaking havoc on frequentlighe scheduling teclement weather posed addion d lenges for both air service and car trend s Nevertheless, Southwest continued to airports tastes. A few years later Southwest was flying ald new murth vous northest airports, including Long Mand, New Hampshire, and Hard Sou bey market y In the compy planned to add t Maine and Kamas) und seven new US wachung AirTran service, Stal se day marks the domestic Un but CEO Gary Kelly publicly stated that opportuniti for growth now lie beyond US. borders Future Challenges Abhough Southwest was profitable and had a strong Enancial position, competition was stiff. The newly med legacy camers were expected to become more efficient, and smaller players e fetue and Alegiant had lower costs than Southwest. While Southwest employee productivity remained high, its operating were saing The company had the highest salaries plots of narrow body jets, and salaries for mechan ks and fight mans were seng the highest in the C try Clely the lature promised dramatic changes to industry structure Would Southwest be able in is position Americal met propemesa mplete the Air Tran acquisition net Could Southwe service and company per Cold Snawet grow pro kaal Wold the majes CEO Cary Kelly. We will have an table coury-dub