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Southwest Airlines Case Study Answers

Southwest Airlines Case Study Answers

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Published by: Ramesh Mandava on Mar 10, 2011
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1. Assess the US Airline industry in early 1990¶s Airlines' profitability is closely tied to economic growth and trade.

During the first half of the 1990s, the industry suffered not only from world recession but travel was further depressed by the Gulf War. In 1991 the number of international passengers dropped for the first time. The financial difficulties were exacerbated by airlines over-ordering aircraft in the boom years of the late 1980s, leading to significant excess capacity in the market. IATA's member airlines suffered cumulative net losses of $20.4bn in the years from 1990 to 1994. Since then, airlines have had to recognize the need for radical change to ensure their survival and prosperity. Many have tried to cut costs aggressively, to reduce capacity growth and to increase load factors. At a time of renewed economic growth, such actions have returned the industry as a whole to profitability: IATA airlines' profits were $5bn in 1996, less than 2% of total revenues. This is below the level IATA believes is necessary for airlines to reduce their debt, build reserves and sustain investment levels. In addition, many airlines remain unprofitable. To meet the requirements of their increasingly discerning customers, some airlines are having to invest heavily in the quality of service that they offer, both on the ground and in the air. Ticketless travel, new interactive entertainment systems, and more comfortable seating are just some of the product enhancements being introduced to attract and retain customers. The United States is the largest single market in the world, accounting for 33 per cent of scheduled RPMs (41 per cent of total scheduled passengers) in 1996. The most significant change in the history of the industry came in 1976 when the Civil Aeronau tics Board (CAB) asked Congress to dismantle the economic regulatory system and allow the airlines to operate under market forces. This changed the face of commercial aviation in the United States. Congress passed the Airline Deregulation Act in 1978, easi ng the entry of new companies into the business and giving them freedom to set their own fares and fly whatever domestic routes they chose. Deregulation of the industry was followed quickly by new entrants, lower fares and the opening of new routes and services to scores of cities. The growth in air traffic brought on by deregulation's first two years ended in 1981 when the country's professional air traffic controllers went on strike. Traffic surged again after 1981, adding 20 million new passengers a year in the post strike period, reaching a record 466 million passengers in 1990. In 1989 events began which severely damaged the economic foundations of the industry. The Gulf crisis and economic recession caused the airlines to lose billions of dollars. The industry experienced the first drop in passenger numbers in a decade, and by the end of the three-year period 1989-1992 had lost about US$10 billion - more than had been made since its inception. Great airline names like Pan American and Eastern disappeared, while others, such as TWA and Continental Airlines, sought shelter from bankruptcy by going into Chapter 11. Today the domestic industry in the US is a low cost, low fare environment. Most of the major airlines have undergone cost restructuring, with United Airlines obtaining employee concessions in exchange for equity ownership. Some airlines sought the protection of Chapter 11 bankruptcy to restructure and reduce costs and then emerged as strong low-cost competitors. The majority have entered into cross-border alliances to improve profitability through synergy benefits.

weaknesses. individual pride. Most of its customers are people who are willing to forego in-flight meals. airlines lost as much profits as they had made since the industry was deregulated in 1978. There were three keystones to Southwest Airlines¶ competitive advantage. The main reasons: 1. The first lied in its employees and how they were managed. 3. How is southwest positioned within the industry? What is the Competitive strategy? The mission of Southwest Airlines is dedication to the highest quality of customer servic e delivered with a sense of warmth. . promoted company parties and understood that the firm was only as strong as its employees. Its recommendations seek to establish aviation as an efficient. He interacted with customers and employees. the company's source of competitive advantage is its low price tickets. opportunities. Southwest remained aware of their ever-changing strengths. Since teamwork is critical. And the final significant success factor was the company¶s cost structure. technologically superior industry with financial strength and access to global markets. Herb Kelleher. US Economic recession which resulted in reduction of air -traffic Gulf War in 1990¶s reduced the load factors Price of jet fuel ± all time hig Perceived terrorist threat resulted into decline in demand All this lead to destructive competition and the industry waved red flag to this when it forced an unprecedented industry collapse. In the period 1990 -9. the human resources department (³the People Department´) encouraged employees to give feedback and to ask questions. Secondly. the firm sought to identify major threats and opportunities in their competitors. the wrong people could µspoil the pot¶. 2. and assess how Southwest could improve and capitalize on markets where their competition failed. was a prime example of how Southwest fostered a healthy internal environment. direct routes and fancy seats if that would mean for a cheaper ticket. Southwest Positioning only low-fare short-haul high-frequency point-to-point carrier fun to fly At a glance. Its people were so important. but that is offered at a higher price. 2. Not to imply that Southw est doesn't provide direct flights. The early 1990¶s were different years for the airline industry. Southwest Airlines was in better shape than its for a simple reason: their low-cost model. that the firm is very selective in the recruiting process. Employee satisfaction was crucial. 4. Therefore. friendliness. CEO.In 1993 President Clinton appointed the National Commission to ensure a strong competitive industry. and company spirit.

Employees also are constantly reminded that they are No. And it's a company unique culture. It's a company that not only nurtures nuttiness but also makes its pleasure a requirement for employment. Managers who do not follow this theory are stuck with employees who just come to get as little done and still get paid. Culture: The culture of this company is what helps make it a wonderful place to work for. They concentrated on flying to airports that were underutilized and close to metropolitan areas. The upper management is at the bottom and supports the front line employees. it not only reduced the firms spending. which includes a order that people have fun at work which are part of Southwest. celebrations . They seized opportunities to expand when other airlines closed their airline services to some cities that they deemed unprofitable. 1 in the company's eyes. How would you describe the structure and culture off Southwest Airline? Structure: Centered on team-building Cross-training encouraged Broad latitude offered 10% of stock held by employees Southwest Airlines is an upside-down pyramid. gifts. a Southwest aircraft spent more hours in the air than its competitors. instead employees are encouraged to think freely without constraints such as titles. serving peanuts instead of meals. The reminders include cards. in which flights had point-to-point routes without connection flights. This is Herb Kelleher's unorthodox leadership style.S. in which management decisions are made by everyone in the organization. Southwest it¶s a good home´ Attributes: Casual dress code Field visits Strong guidelines to everyone Celebrations quite common Recognition ± an important element . Eliminating central hubs created efficiency.and profit sharing to motivate them that there are ³our children´ In fact they believe: ³Yes. on average.and threats. Therefore. airline industry in 1974 and offered it ever since. Southwest found that a swift turnaround of an aircraft created cost advantage. initiating the first profit-sharing plan in the U. not just the head executives. Cost efficiency was a two-front strategy for the firm. but it also allowed them to pass the cost reduction onto the customers through providing lower fares. The leaders of this company have tried their best to develop a place where everyone loves to come to work and wants to work. 3. The company is described to not have much emphasis on structure. which set itself on low fares and low frills. Southwest Airlines values employees. notes. because delays were often associated with connection flights. who are the experts.

initiating the first profit-sharing plan in the U. So how does an airline support individuality. Hiring Identify attitudes rather than skills Rigorous interviewing . with laughter and grace. Southwest encourages employees to treat customer service as the most important aspect of their job.South West Airlines built numbers on its culture where as most competitors let the culture to shape up by their focus on numbers NUMBERS CULTURE SCHEDULING STRATEGY 4.S. Southwest doesn¶t have a Human Resource Department²it has a People and Leadership Development Department! Southwest is turning around long -held corporate beliefs by acting on the conviction that a business is not an entity² it¶s people. How do Southwest¶s Human Resource Management practices support. Herb Kelleher.³Service for Smiles and Profits´ CEO Kelleher. personal.´ The airline believes the best way to succeed is to treat employees with respect and give them the latitude and encouragement they need to do their jobs better than anyone thought possible. " Southwest Airlines values employees. to be individuals² mavericks even. reinforce. It encourages employees to be innovative. Even the place in which employees are hired shares this spirit in its name. innovation. and fun without creating chaos and anarchy? In large part. understand. chairman and one of Southwest Airlines¶ founders. Southwest is not afraid to use the ³p´ words: people. "We want people who do things well. and care. much of which takes place in Southwest Airlines¶ festive learning center: the University for People. to communicate. and maintain the culture of the company? Southwest¶s philosophy . personalities. states emphatically ³competitors have tried and failed to co py us because they cannot copy our people. success is due to employee education. airline industry in 1974 and offered it ever since.

they come back. most people would prefer to do without it if it meant for cheaper ticket price. How do Southwest¶s Structure. "a primarily short-haul airline that flies directly from city to city.Peer hiring Compensation Varied with position At par with industry norm Pension through a profit -sharing plan Culture Casual dress code Field visits Strong guidelines to everyone Have Fun Together Treat employees as family Hire people who form the fit Involve employees 5. and with the rising price of oil. processes. organizational training and strong leadership are identified as the sources of employee motivation. only peanuts and other snacks. www. the company's source of competitive advantage is its low price tickets. The Southwest Airlines consists solely of Boeing 737s and offers only coach seats (there is no business or first class). dedicated. Second. they'll take real good care of the customers. Southwest will need to find new ways to keep costs down and in turn prices down. Southwest Airlines also do not offer in-flight meals. One major opportunity for Southwest would be to push the use of their website. satisfied. They base their model on the motto. culture and Human Resources Management practices relate to the company¶s strategy and its competitive Environment? While Southwest Airlines offers no frills. Southwest Airlines do meet customer expectations when it comes to service. and energetic. with just one type of plane--the Boeing 737 . First. which have become standard to competitors. direct routes and fancy seats if that would mean for a cheaper ticket. business class. At a glance. loss of strong leadership and organizational structure are discussed as possible future proble ms . The reason for Southwest Airline's success is due to their low -cost model.and the lowest costs". the company is defined as ³excellent´ according to the criteria established by Peters and Waterman.com to employ the ³ticketless passenger´ strategy. Employees are either of independent unions or have flexible contracts which allow employees to work longer hours. When the customers are happy. but that is offered at a higher price. or any form of luxury class seat would have been excess baggage. And that makes the shareholders happy. Most of its customers are people who are willing to forego in-flight meals. To have opted for a first class. have been seen as unnecessary for an airline that provides a short-haul trip from city to city at the lowest cost. Services. such as in-flight meals and luxury seats. management-employee relations. Southwest is simple and direct at the goal of their service. Southwest Airlines was in better shape than its competitors for a simple reason: their low-cost model." Southwest has very good relations with all their employees. which states that "if they're happy. Not to imply that Southwest doesn't provide direct flights. Third.southwest. Ticketless travel cuts the cost in half in comparison to use of a travel agency.

Atleast 20 departures per day Low cost service Offering great service at low cost : SWA cost per passenger was 7. they have cost probl ems´ ‡ ‡ ‡ Cost Cutting Pilots contributing new ideas to save fuels Fuel costs Buying fuel from vendors who offer best prices : Carry inventory if possible Gate costs & landing Fees Average : $2. Did not promote connecting services 3. Savings in reduced taxi time. Processes and Operations 1. Did not transfer baggage directly to other airlines Only drinks and snacks often peanuts served on board 1.influencing motivation and service. Southwest were the first airline with a frequent flyer program to give credit for the number of trips taken and not the nu mber of miles flown.50 pp. Airbus and Boeing 737¶s had average life of 20 years US industry average was 55 mins. less congested airports of large cities 4. Large airports: $6 . fewer gate holds and less in-air waiting time 4.$8 pp No. Average age of SWA was 7 years(lowest in the industry) Differentiation in terms of ³turnaround´ time . SWA passengers flew non-stop origin to destination. Flew into uncongested airports of small cities. Usually do not share the ground handling crew until unavoidable Other airlines flew variety of jet aircrafts.00 pp.Fleet of 150 and avg of 1500 trips per day. Southwest Airline¶s concept of service is the true source of motivation and excellence.3 cents in 1993. as many as 5 distinct ones including McDonnell Douglas. ‡ ‡ . It doesn¶t coordinate its services with other airlines     84% unionized labor force but its labor relations were excellent Only flew Boeing 737 .     Cost Control ³Airlines don¶t have revenue problems. of Departures Maximize productivity of people and machinery . Small airports: $2. 2 out of 3 planes were turnedaround in 15 mins. Did not operate in the hub-and spoke route system 3. Travel agents had to contact the airlines directly to book seats 2. Apart. Did all of its ticketing (not making seats available through computerized systems) 2.

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