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Southwest Airlines Act II –

An Airline in Trouble ?

Presented To
Prof. Hitesh Manocha

Presented By
Swagat Sen Gupta 48-B Akshat Jain 60-B
Pooja Katiyar 31-B Namit Kewat 23-B
Amit Tripathi 6-B
Background
• In 1966, Herb Kelleher, Rollin King and John Parker
formed the company.
• Initially called Air Southwest Co. but name changed to
Southwest Airline Co. in 1967.
• Commenced operations in Texas connecting Houston,
Dallas, San Antonio.
• Jan 1971, Lamar Muse was appointed first CEO.
• 1973 was its first profitable year.
• Kelleher became chairman in 1978.
• Southwest started flying out of Texas to New Orleans in
1979.
Background
• After September 11 attacks, Southwest was the only airline to
remain profitable while others grounded 240 planes and 70,000
workers.

• In 2001, Kelleher stepped down as CEO and was succeeded by


Parker

• In 2004, Southwest had 34000 employees and flew to 58 cities.

• In 2004, Parker resigned and Kelly became CEO.


Southwest’s Success Story
• Southwest was one of the biggest success stories in
America.
• Despite a no frills service, it was able to take away
market share from competitors in most markets.
• It was able to achieve low fares by eliminating
unnecessary costs.
• Employees experienced a great work culture at
Southwest
Features of Low Cost Airlines
• Operate only one kind of aircraft.
• One class carriers offering standardized treatment.
• No frills services
• Refreshment is limited to light snacks.
• Seats not allocated to passengers on flight.
• Faster turnaround of planes
• Used low traffic secondary airports which are cheaper.
• Fly in short haul point to point routes.
• Operate planes with minimum possible employees.
• Cross utilize employees.
• Major portion of ticket sold over internet.
Problems at Southwest
Labor Problems
– Pay received at Southwest was much lower than competitor
airlines though Southwest was most profitable airline in US.
– Flight attendants demanding better terms of working.
– Remuneration for all the work they did and not just for
official duties.
– Payment for 4 week training period.
– Special compensation for working on holidays.
– Competitor airlines giving more frequent raises.
Problems at Southwest
Customer Relations
– Few staff at airport made it difficult to get tickets
fast and people had to stand in line for a very long
time.
– Airline refused to accept e-mail inquiries.
– Southwest asked customers with a question to call
airline’s customer service number.
Problems at Southwest
Rising Costs

– Rising fuel prices.


– Increasing labour costs.
– Shifted flights from non-profitable routes to
profitable routes.
Problems at Southwest
Competition
– Rise of several low cost competitors.
– Main competitors are JetBlue and AirTran.
– Competitors offer more frills than Southwest.
– JetBlue was most punctual in industry, offered
lowest prices, best record in baggage handling.
Strengths SWOT
• Low costs
• Service innovation
• Technological expertise
• Financial Position
• No-frills service
• Image
Threats
• Safety record • Multi-country coverage
• No baggage transfer
• Customer Service
outside southwest system
Opportunities

• Growth Opportunities for smaller urban airport destinations


• Societal Values in the changing economy
• Rebound opportunity as a result of 9/11 decline in market size
• Long-term industry growth
Threats

• Costs: Aviation fuel, labor


• Terrorist attack on an aircraft
• General economic downturn
• Number of rivals and their relative size.
• Communication technology and e-commerce
• Extent to which rivals use economy of scale
• Declining consumer confidence
• Diminishing pool of qualifies employees
PEST ANALYSIS
Political
• Deregulation in 1978.
• Post 9/11 attacks, government helped major airlines
get out of financial trouble.
Economic
• No layoff
• Under unfavorable economic conditions
– People looking for cheaper travel options.
– Low cost airlines are better option.
Social
• People trust southwest
• Employee trust southwest

Technological
• Use of e-tickets.
• Use internet to compare prices and find best options
for trips.
• Other planes can be used with better technologies.
Porter’s 5
Threat of New
Forces Entrants = Low

model
Bargaining Competitive
Power of Rivalry Threat of
Suppliers
within Substitute
•Food & Drinks = Products = High
Low Industry =
•Fuel = High High

Bargaining
Power of
Customers =
High
Recommendations
• Introduce continuous learning programs that will be
used to retain current employees.
• Create a promotional campaign like buy one ticket
and get discount on the return ticket.
• Improve turnaround times.
• Improve employee-management relations.
• Provide meals for sale on flights.
• Provide seat numbers to the passengers.
• Provide more legroom and comfortable seats to the
passengers.
THANK YOU