Introduction By October 2002, Southwest Airlines had apparently overcome the initial airline industry crisis resulting from the terrorist attacks of September 11, 2001 ("9/11"). Most of the large national airlines had suffered huge losses in demand, profitability, and market share, while by contrast Southwest's low-cost operations had thrived, even in the face of declining profits. Yet just a year after the attacks, Southwest and the industry at large were facing yet unknown future changes to their operating environment. There was already a new dynamic of security becoming a priority consideration, and new government directives and taxes intended to ensure and maintain that security. This new security dynamic had already impacted Southwest's key operational strategy of customer-focused service, due to boarding delays and resulting lower levels of on-time arrivals. As a result, due to decreased demand due to persistent customer fears, depressed macroeconomic conditions, new federal taxes, and the perception of declining service, Southwest began to experience what other carriers had already: reduced revenue, increased costs and decline in profitability. After 9/11 and amid general industry malaise, Southwest management finds itself having to make strategic decisions regarding the rate and mode of future growth. Additionally, changes in the operating environment, such as increased safety requirements, taxation, restrictive government regulations, and unpredictable responses from competitors, have created challenges to Southwest's operating strategy of offering low-cost, customer-friendly differentiated service. As a result, the central question facing Southwest's management is: How should ... half the paper ... hwest's core competencies, such as unassigned seating, "paperless" ticketing, and efficient boarding processes. More importantly, the additional costs and safety procedures have resulted in decreased profitability and declining levels of on-time arrivals. Despite this, Southwest has managed to maintain acceptable levels of profitability compared to other carriers. As a result, Southwest is now considered a "major player" in the industry, distorting government and employee expectations. For example, Southwest's good relations with union employees are starting to show cracks as unions have hardened positions during contract negotiations. Furthermore, with the success of JetBlue, which was created primarily based on Southwest's low fare strategy, other imitators may now be encouraged to enter the market, given the new low fare dynamic in the post-9/11 environment..