Southwest's Low-Cost Business Model

Southwest is a high-quality, low-cost, growth airline with the nation’s largest point-to-point route network. A key component of our business strategy is our focus on cost discipline and efficiency, which allows us to profitably offer low fares. Adjusted for stage length, the Company has lower unit costs, on average, than the majority of the largest domestic carriers.

Our low-cost strategy includes among other elements, the use of a single aircraft type (the Boeing 737), our operationally efficient point-to-point route network, and our highly productive Employees. The use of a single aircraft type allows for simplified scheduling, maintenance, flight operations, and training activities. Our point-to-point route structure includes service to and from many secondary or downtown airports such as Dallas Love Field, Houston Hobby, Chicago Midway, Baltimore-Washington International, Burbank, Manchester, Oakland, San Jose, Providence, and Ft. Lauderdale-Hollywood. These conveniently located airports are typically less congested than other airlines’ hub airports, which has contributed to Southwest’s ability to achieve high asset utilization—aircraft can be scheduled to minimize the amount of time they are on the ground. This in turn has reduced the number of aircraft and gate facilities that would otherwise be required, and allows for high asset utilization. In 2019, Southwest flew more nonstop routes and operated more flights per aircraft daily than any other major carrier.4646) As reported by the U.S. DOT’s summary report of scheduled passenger flights for full year 2019 by operating carrier. This data can be accessed via Diio Mi at Even so, we expect to make further operational investments over the next several years designed to further improve our efficiency.4747) The 2019 Southwest Airlines One Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specific forward-looking statements include, without limitation, statements related to (i) the Company’s Vision; (ii) the Company’s financial position, outlook, plans, strategies, goals, targets, and projected results of operations, including factors and assumptions underlying the Company’s projections; (iii) the Company’s operational initiatives and related plans and expectations, including with respect to technology and fleet initiatives; (iv) the Company’s other initiatives, including hiring, diversity, Rapid Rewards, safety, fuel, and environmental and sustainability initiatives and related plans and expectations; (v) the Company’s network plans, expectations, and opportunities; (vi) the Company’s expectations with respect to fuel efficiency, including factors and assumptions underlying the Company’s expectations; (vii) the Company's plans, expectations, and priorities in connection with the return of the MAX to service; and (viii) the Company’s fleet plans and expectations. These statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Factors include, among others, (i) the impact of fears or actual outbreaks of disease or pandemics, changes in consumer behavior, economic conditions, governmental actions, extreme or severe weather and natural disasters, fears of terrorism or war, actions of competitors, fuel prices, consumer perception, and other factors beyond the Company's control, on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results; (ii) the Company's dependence on Boeing and the Federal Aviation Administration with respect to the timing of the return of the 737 MAX to service and any related changes to the Company's operational and financial assumptions and decisions; (iii) the Company’s dependence on other third parties, and the impact on the Company’s operations and results of operations of any third party delays or non-performance; (iv) the Company's ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives; (v) the Company’s ability to timely and effectively prioritize its initiatives and related expenditures; (vi) the impact of labor matters on the Company’s business decisions, plans, and strategies; and (vii) other factors, as described in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020.

Our focus on controlling costs also includes a continued commitment to pursuing, implementing, and enhancing initiatives to reduce fuel consumption and improve fuel efficiency. One of the ways we are reducing fuel consumption and improving fuel efficiency is through fleet modernization. We previously accelerated the retirement of all Boeing 737-300 and 737-500 aircraft from our fleet and introduced service with the 737 MAX 8 aircraft, which is 14 percent more fuel-efficient and releases fewer CO2 emissions than our other aircraft. However, the MAX groundings resulted in the removal of these more fuel-efficient aircraft from our schedule, which in turn decreased our overall fuel efficiency in 2019 to 0.8 percent year-over-year.

Our low-cost structure has historically been one of our primary competitive advantages, as it has enabled us to offer low fares, drive traffic volume, grow market share, and protect profits.

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