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Business Report: Southwest Airlines


Operations and Process Management

Module Leader: Phill Morgan

MSc Business Management

Student Name:

Muhammad Faisal Khan

Student ID:


Hand-in Date:

14th April 2016


Executive summary Table of content .


a low cost carrier revolution took place when Southwest airline has launched their services in the United States. Recently. 2014) but. Mexico and Caribbean (The Economist. Texas and it has nearly 34. 2016). . in the beginning it was very difficult to predict that whether it is right move or not because southwest operates in a pointto-point network which means after transporting passengers and their luggage planes go back to the point where they came from.8 billion. US low-fare airline industry is highly competitive as more than 8 low-cost-carriers are providing their services such as JetBlue. Southwest has done acquisition with AirTran.726 employees (Southwest. Southwest has used the opportunity of acquisition with AirTran and started operating to near-international destinations such as. At that time. almost 85% Americans prefer flying than other means of transport (Southwest.8% market share see appendix figure 1. but Southwest Airlines has changed the norms of airline industry by introducing low-fare airline in order to make it affordable for everyone. It was also considering that AirTran integration will increase the operational cost (Forbes.This report aims to analyse Southwest Airline’s operations and processes by employing key operations management framework. Company’s headquarter is situated in Dallas. Recently. Air Alaska bought Virgin-America by following Southwest’s footsteps (The Guardian. In 2011. which make Southwest a leader in the industry by having 18. Regardless of such competitiveness Southwest’s revenue is $19. In 1967. 2012). It will be taking into consideration their domestic and near-international routes such as. 2015). Mexico and Caribbean (Southwest. whereas AirTran have a significant hub-to-spoke strategy which only operates to their concentrated routes to fill the seats in order to maximise the profit. Spirit Airlines Air Alaska and Virgin America. only few people were flying because air travel was affordable only for the elite.1(CAPA. 2015). 2016). 2015).

6 billion a growth of 5. Southwest Airlines also shown growth in their operating revenues were record $18. which is $1. materials) converts through a transformation process into outputs such as.g. Southwest operates over 3.1 Transformation Process The operations are activities in which input resources (e. Approximately. 2011).1 percent compare with year ended 2013. Company’s record earnings gushed by 125% as compare with FY2014 (southwest business report 2015). since company has record net income $1. See appendix figure 2.2 billion.2. people. information. but they do varied in different manners.800 flights a day with more than 500 roundtrip markets. Strategic recommendation will be proposed in order to improve their operations for gaining competitive advantage. products and (or) services) (Slack et al. successfully managed provide their services in more than 90 destinations across the US. This report aim to investigate Southwest’s operation processes. (2014). planning and designing.1 2. Mexico and Caribbean.1 which illustrates.64 per diluted share. energy. all operation processes are identical as they transform resources. ANALYSIS 2. Financial year 2015 was a historic year for Southwest Airlines. equipment. As a part of aviation industry Southwest output is a service see appendix figure 2. four of which are specifically are .2 The 4 V’s According to Slack et al.

on the other hand high utilisation of available resources would help organisation to reduce the unit cost. more passengers and miles reduces per unit cost to achieve economy of scale (Slack et al.2. As all airlines have similarities in terms of operations and their output. 2004). it allows Southwest to be flexible in terms of changing capacity due to . but in order to distinct them. 2011). However. see appendix. Variation in Demand Company’s characteristics reflects the implication of variation in demand. variation of airliners in Southwest’s fleet operated in order to satisfy demand par seat. This table shows the mileage and capacity of both airlines for the year 2015.2. fairly high flexibility of destinations in order to fulfil customers demand portraying that regardless of being in low-cost carrier Southwest catering their customer quite well and AirTran giving Southwest an edge as it takes their passengers to near-international destinations such as Mexico and Caribbean (Southwest and JetBlue 2015). The high levels of variation in demand in order to satisfy the customers’ demand would lead to high costs (Slack et al. a variety of elements were analysed. Moreover. The low variation in demand can be seen through table 2.important and also known as Four V’s.3. repeatability and systemisation of the airlines can be reflect through the high volume. These factors depict the effectiveness and productivity of airlines operations and their responses to customer need and based upon their annual reports (2015) see appendix figure 2. The high specialisation.1. Variety The variety of locations is illustrated through the table see appendix table 2. o o o o Volume: Capability of flight operations Variety: Destinations Variation: Airline Fleet Visibility: Ticket Operations Volume The assessment of volume has been done by Available Seat per Mile (ASM) see appendix table 2.

Visibility.demand per route (Southwest and JetBlue 2015). Visibility It is fairly difficult to understand the concept of process visibility in different types of organisations. However. subsequent low customer contact see appendix table 2. 2014). apart from essential information about logistics. 2001).3 Key Performance Objectives Organisation ought to work to fulfil their customers’ demand by providing them speedy and dependable services at fair price. The Southwest experience low visibility.4. available online. because in airline industry high variety in terms of location can’t be compromised (Southwest and JetBlue 2015). wide variety of airliners limit the standardisation which may be the cause of increased operational costs (Mintel. 2013). low variation and low visibility (Matopoulos. high volume. o o o o o Quality Speed Dependability Flexibility Cost Southwest airline will be assessed through aforementioned key performance objectives parameters. 2014). low variety. and they should also help their supplies to increase services they offer (Slack et al. shows that how much operational processes are exposed and experienced by the customers directly (Slack et al. There are five core performance objectives and they equally applicable to all sort of operations. The level to which customers of Southwest be able to track their booking through stages of the flight process. In airline service industry customers do not need to know about the operational processes. In order to reduce the processing cost it is required to have high volume. Southwest has provided various options to their customers in order to gratify with their order. 2. low variation in most case high variety. Quality .

this table shows that how airlines filling their planes. The high volume of passengers using Southwest airline indicating the trust on quality of service providing by the airline (Southwest and JetBlue 2015).Quality can be seen in table 2. since time is key asset to customers. Flights and handling luggage are key elements the customers rely on. The information to investigate the reasons behind these cancellation is missing which reduced the dependability. Food and beverages need to be profuse to cater all passengers.5 see appendix. Speed The time between order and delivery examined through delays and on-time flights see appendix table 2.7. Costs . Without wasting. Each additional service that airline provides increase the operational costs.6. Flexibility Airlines flexibility can be seen through providing individual treatment to their customers has been examined by the provided services see appendix table 2. illustrated through Available Seats per Mile. therefore. labour and fuel costs and this balance is very difficult to achieve (Southwest and JetBlue 2015). yet extra weight resulted extra time. Dependability In airline industry mishandled baggage and cancelled flights are essential elements to assess the dependability see appendix table 2. Wi-Fi and in-flight entertainment require investment to equipped the flights. baggage charges can affect passenger’s airline chose . their figures are vital. Southwest has proven track record with negligible delays in terms of time and percentage (Southwest and JetBlue 2015). Passenger Load Factor and Total Passengers boarded.8. Well-organized operations are significant to airlines.

cutting down the turnaround time. Location and Capacity Management Passenger distribution centre and integrated transfer hub plays a vital role in promoting the improvement of transportation system and infrastructure (Sun and An. However. this strategy plays vital role in Southwest success. Southwest paying the cost of producing high volume-variety to their customers. 2012).56 per passenger. since CASM and PRASM examined passengers overall operating cost per seat. 2. at the same time they have trimmed the block time as well. On the contrary. Texas Southwest operate their flights through point-to-point strategy which means after transporting passengers to their destinations planes go back to the place where it came from (Stevenson. 2012). Southwest has started hub-to-spoke strategy for nearinternational destinations such as Mexico and Caribbean (Southwest.9 see appendix indicate the costs of the flights and the turnover. Southwest has made some changes to their operational process in order to save the high operations cost such as. Southwest has high volume-variety and low-variation in order to achieve the economy of scale and at the same time provide great experience to their customers it produces mass services (Slack. et al.4 Operating Process Since.5 Layout. after acquisition with AirTran in 2011. From Dallas. filled or not (Southwest and JetBlue. high passenger load factor could be the reason. 2012). Block time is the amount of time scheduled from departure from one gate until arrival at the next (Southwest. 2013).Airline costs shown in table 2. 2013). this strategy . 2. Southwest has the maximum variance in Passenger Revenue per Available Seat Mile and Costs per Available Seat Mile making profit $0. 2015).

Typical decisions comprises on assignment of overtime. 2. It is also help to naturalise the pressure of hard-work and . Southwest’s shares increased by 3% to $37. Southwest (2015). 2016). 2010). announced a good 11. a core gauge to measure airline profitability will slump almost 3 percent year-over-year (YOY) in 2 nd quarter of 2016 (Southwest. allocation and utilisation of resources in order to gratify customers demand in an effective and efficient manner is resulted by manufacturing planning and control. which also indicates the solid economic situations. this consistent trend reflects the Southwest ability to perform to maximum their capacity under tough conditions.6 Resource & Inventory Pslanning and Supply Chain Management Decision making on the acquisition. Southwest has announced that they are expecting seating capacity to improve between 7%-8% and it will be 6%-7% in middle of 2016 (Southwest. Though. the relaxed and fun working environment create a strong sense of community. The corporate culture of Southwest make it unique (Swmedia. which helped airline to gained their revenue by 8. airline has publicised the seating growth allowance at 7%. 2015). 2013). withdrawing previous anticipation of 8% growth (The Street.98 on substantial volume since. In 2015. production size and sequence of production (Graves. 2012).1% yearover-year increment in traffic. 2015).9% for financial year 2015.3 (Quora. workforce level. Southwest witnessed an 8% Growth in traffic was resulted by the heavy demand for travel across the industry. On the basis on this growth Southwest has predicted passenger revenue per available seat mile (PRASM).allows airlines to operates in most concentrated areas see appendix figure 2. Every company who produce regardless of products or services must need to decide the capacity of every single facilities (Slack et al. The Street (2015) rating team has fully recommended Southwest Airline by giving it A+ business rating. 2015). 2015). maximising the capacity is not the only capacity measure in applicable to all sort of situations (Slack et al.

2013). 2013). 2014). Due to having one type of airliners. In order to avoid jets grounding company has to handle their $325 million inventory more efficiently. Southwest has adapted no-frills approach in order to run their operations. Though. Southwest uphold the cooperative labour relations in various manner. 2015). Managing supply chain and inventory in an effective and efficient manner is the key of success for any organisation (Slack et al. Due to different route concentration airlines employ various types of jets in terms of their capacity to their fleet. Doubtlessly. 2003). For any organisation is it very important to manager their inventory (resources) to control the operational costs and maximise the profit (Slack et al. it creates no challenge if plane has call off for last minute maintenance as passengers and crew can be moved to another plane without any problem since seating arrangement is identical and it doesn’t create issue for crew as well (Southwest.. Southwest has one type of jets. unlike others Southwest’s fleet has only Boeing 737 airliners (Southwest. training and recruiting its human resource.competition. but their CEO’s novel thoughts has changed the company’s way of managing. Lack of Information regarding inventory and its availability causing slow response time that effected everything from mechanical problems to part fulfilment (Southwest. Company was using their legacy information system in order to manage their supply chain and inventory control but their system was unable to cope with the high volume of data. Since. Southwest Airline on of the US organisations who understand that how fun and relaxed environment improve the employee management. for example: before each contract negotiation company encourages negotiators and members of labour union to put their issues by conducting employee survey (Southwest. having an innovative and successful corporate culture even Southwest concern about their information system in order to improve their profitability. company has to train their engineers for one type of planes and keep one type of extra parts inventory which helps to save costs from training and inventory. 2012). Beside. customer and profits. Southwest has hired a supply chain consultancy firm “i2” that has .

This revolutionary method has shown some significant results. Southwest has designed and implemented i2 service budget optimiser.7 Total Quality Management With the good reason it is common saying in the service industry that “the customer is king”. i2 demand planner and i2 replacement parts planner in order to overhaul its supply chain management to improve data visibility (Southwest. 2004). even during financial crises company’s focus doesn’t change from employees to customers and that created an amazing corporate culture in Southwest as the quality management and a good customer service focused on the employees. After employing SCM software. 2. Unlike. Global Retrak Pulse of Reputation Institute has stated that perception of the product weigh about 40% but the brand perception weigh 60%. other companies Southwest do not emphasise on customer satisfaction or quality but they focus on employees’ satisfaction (Corporate Excellence.provided a supply chain management software along with their services. Though. customers often play vital role to market the bran in public but keep in mind employees are the actual storyteller for both brand and the company. 2011). . In obsession to satisfy customers often companies forget their main stakeholders which is close to them. their employees.