About Southwest Airlines (AvHistory #10)
From Maverick Startup to Mainstream Carrier: The Evolution and Decline of Southwest Airlines' Competitive Edge
If we maintain our North American focus and turn to Southwest Airlines, we see that for most of its nearly sixty-year history, Southwest was admired and loved. This article adds additional context to my previous articles oriented around Southwest Airlines.
Southwest Airlines was initially founded in 1966 by Herbert Kelleher, Esq., and his friend Rollin King, and was incorporated as Air Southwest Co. in 1967. The company planned to operate as an intrastate airline, flying a Texas Triangle network between Dallas, Houston, and San Antonio. By flying only within the state of Texas, Southwest would be exempt from regulation by the federal Civil Aeronautics Board, the precursor to the FAA, allowing it to undercut competitors’ prices. Three other airlines (Braniff, Trans-Texas, and Continental) sued to prevent the company from starting up. The lawsuits were resolved in 1970, and in 1971 the airline changed its name to Southwest Airlines. In 1975, Southwest began flying to other cities in Texas, and in 1979, after the passage of the Airline Deregulation Act, it began flying to adjacent states. It expanded service to the East and Southeast in the 1990s, and to Denver in 2006, which became one of its most popular destinations. Southwest Airlines was profitable for 47 consecutive fiscal years of its 59-year existence, from 1973 through 2019.
Southwest Airlines, as an entity, began with the March 15, 1967 incorporation of Air Southwest Co. in San Antonio by Rollin King and Herb Kelleher as a Texas intrastate airline. The idea was King’s, with Kelleher serving as his personal lawyer.
By operating within a single state and avoiding interstate commerce (including not selling tickets outside Texas), intrastate carriers could bypass strict federal airline regulations, allowing greater flexibility in routes, pricing, and frequency. The most successful such company was Pacific Southwest Airlines (PSA), a California intrastate airline that, according to many sources, inspired modern carriers like Southwest.
A Texas intrastate carrier had to be economically certified by the Texas Aeronautics Commission (TAC). Southwest applied in November 1967, and the TAC awarded it a certificate of “public convenience and necessity” on February 20, 1968. An injunction against the award was filed the next day by three competitors (Braniff, Trans-Texas Airlines, and Continental Airlines) in a Texas district court in Austin, marking the start of a legal process that lasted over two years. In May 1970, the Texas Supreme Court ruled in favor of Southwest, and in December the U.S. Supreme Court declined to hear the case. The challenge argued that additional air service was not needed in Texas and that the TAC had erred in granting the certificate. The legal battle cost Southwest $530,000, leaving the company nearly bankrupt.
Per publicly available records, early shareholders and board members included members of the Texas elite, such as Robert S. Strauss, John D. Murchison (son of oilman Clint Murchison Sr. and brother of Dallas Cowboys founder Clint Murchison Jr.), and rancher and industrialist Wesley West. King came from old money in Ohio, while Kelleher, originally from New Jersey, had married into one of San Antonio’s prominent families. Together, they raised enough capital to keep the airline afloat. Lamar Muse was elected president and CEO in January 1971. Muse, a Texas native and experienced airline executive, had worked at five carriers since 1948, including serving as CEO of Central Airlines and Universal Airlines.
Muse renamed the company Southwest Airlines, moved its headquarters to Dallas, Texas, and raised $1.25 million. The airline began service by mid-June, purchasing three aircraft and an option on a fourth “white tail” Boeing 737-200 from Boeing at favorable prices with seller financing. Southwest also hired the pilot corps of the defunct Purdue Airlines, along with other personnel.
Pacific Southwest Airlines assisted Southwest by sharing operating knowledge and manuals, accelerating its development. Air California also played a role in training Southwest flight attendants in 1970 and 1971.
Finances were strengthened by a $7 million IPO in June 1971, with many California investors familiar with PSA participating. Southwest openly admired PSA, with Muse stating, “We don’t mind being copycats of an operation like that.” PSA did not object, seeing Southwest as a potential future partner or acquisition target.
Southwest also adopted PSA’s approach of emphasizing attractive flight attendants, reflecting the era’s marketing norms and its focus on male business travelers. Southwest even ran a recruitment campaign referencing Hollywood actress Raquel Welch, which drew 1,200 applicants.
Scheduled passenger service began on two routes: Dallas Love Field to Houston Intercontinental and Dallas to San Antonio. The Houston route operated 12 times weekly, and the Dallas–San Antonio route six times weekly.
Unable to block Southwest’s certification, Braniff and Trans-Texas later argued that Southwest was engaged in interstate commerce and should be regulated federally. The Civil Aeronautics Board disagreed, and the courts upheld Southwest’s position. The appellate court noted in 1972 that the litigation “should have been terminated long ago; its undue prolongation approaches harassment.” Southwest ultimately prevailed, while Texas International and Braniff later faced legal and antitrust consequences.
Southwest initially suffered losses as business demand alone was insufficient. In October 1971, it took delivery of a fourth aircraft to support hourly Dallas–Houston service, increasing financial pressure. The company responded by introducing low-cost off-peak flights, moving Houston operations to Hobby Airport, and improving aircraft utilization. To maintain frequency with limited aircraft, Southwest reduced turnaround times to 10 minutes—an innovation that became central to its operational model.
In 1973, Southwest applied to serve Harlingen in the Rio Grande Valley. After legal challenges and a pilot strike at Texas International, Southwest received emergency authorization in 1975 and began service rapidly. By 1976, additional Texas cities were approved, and by 1977 Southwest had expanded significantly within the state. By 1978, it operated 13 aircraft across nine cities with an operating margin above 26%.
Following the Airline Deregulation Act of 1978, Southwest planned interstate expansion. However, the Wright Amendment restricted operations from Love Field to nearby states and limited aircraft size and routing. Southwest adapted by expanding within the allowed region, later growing into a broader interstate carrier in the 1980s and beyond.
Southwest hired its first Black pilot, Louis Freeman, in 1980. In 1992, he became the first Black chief pilot of a major U.S. airline.
The Houston pilot base opened in 1984, the first outside Dallas. Later that year, Southwest took delivery of its first Boeing 737-300, becoming a launch customer.
In 1993, Southwest acquired Morris Air for $134 million, expanding into the Pacific Northwest. David Neeleman, a Morris Air founder, later helped create WestJet and JetBlue.
On March 16, 1995, Southwest launched its first website, “Southwest Airlines Home Gate.” It quickly became a leading airline website for online bookings.
As of 2026, Southwest remains a major carrier at Love Field, with headquarters, hangars, training centers, and simulators located nearby. Its stock ticker “LUV” reflects its identity. In 2009, the FAA investigated improper parts installed on some aircraft but found no safety risk.
Southwest acquired AirTran Airways in 2011, completing full integration by 2014. The airline was repeatedly recognized by Fortune for corporate reputation.
In 2019, the FAA grounded the Boeing 737 MAX fleet, impacting Southwest operations. The airline canceled numerous flights while awaiting recertification.
In the 2020s, Southwest faced major operational disruptions, including the 2022 holiday meltdown, which resulted in over 15,000 cancellations and significant financial losses. An $140 million DOT fine followed. Elliott Investment Management acquired a significant stake and pushed for governance changes. By 2024, leadership changes included board restructuring and strategic shifts.
Southwest subsequently introduced major operational changes, including layoffs, elimination of free checked bags, assigned seating, premium fare options, red-eye flights, limited flight credit validity, expanded distribution through third-party platforms, and a codeshare agreement with Icelandair. As of 2025, Southwest serves over 100 destinations across 42 U.S. states, Washington, D.C., Puerto Rico, and multiple destinations in the Caribbean and Latin America.
This brings us to today, where some argue there is no fundamental difference between Southwest Airlines and other legacy carriers. It is no longer viewed as distinctly differentiated in the way it once was.
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