A Report On:

Compensation Management
Practices and Policies of Burj Al Arab Hotel (Dubai)
Course: Compensation Management
Course Code: 507

Submitted by
Group Name: The Leaders
SL NO Name ID Remarks

1 Sangeeta Akter 1515

2 Farzana islam Sharlin 1517
3 Munni Akter 1521
4 Jahedul Islam 1534

5 Md. Jahid Hasan 1560

6 Md Rasel Hossain 1553
Group Members:

Jahangirnagar University
Department of Management Studies
Submission Date:

A CASE STUDY ON SOUTHWEST AIRLINES

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Case Discussion Questions Q1. How would you characterize the business model of
Southwest Airlines? How does this differ from the business model used at many other
airlines such as United and American Airlines?
Southwest Airlines, being a Low Cost Carrier (LCC), is famous for its uniquely competitive low
fares, which are often some 30% lower than most of its major rivals. They have achieved this
low cost leadership position in their industry by emphasizing on:
 Faster than average gate turnarounds to yield higher utilization rates.
 One class of seating.
 No meals or movies on flight.
 One type of airplane – Boeing 737.
 Point-to-Point flight routes.
 High employee productivity.
 A very successful fuel hedging program (long-term contract with oil companies to buy
fuel equivalent to $51 per barrel through 2009 that has reduced a major fraction of its
operating expense).
 Serves relatively less-congested airports to achieve high asset utilization and reliable on-
time performance (however later it had spread its operations to major airports as well).

Q2. Identify the resources, capabilities, and distinctive competencies of Southwest Airlines.
Resources:
 Southwest Airlines had always managed its resources well including the financial
resources. In 2012, Southwest returned $422 million to Shareholders through
repurchasing $400 million of common stock (approximately 46 million shares) and
distributing $22 million in dividends. It made money every year and earned a Return on
Invested Capital (ROIC) of 5.8%. Even in 2008, an awful year for the airline industry it
made a profit and earned an ROIC of 4%.
 By October 2013, Southwest Airlines has a large standardized fleet of 550 of Boeing 737
aircrafts.
 Implementing a new reservation system as a part of its endeavor towards technological
resources, Southwest Airlines introduced the e-ticketing service a few years back which
is now responsible for generating 46% of its revenues.
 Hiring at the rate of only 3% of the job applicants interviewed, Southwest Airlines has
the most thorough recruitment process which equips it with the most competent
workforce. Apart from this the company culture of teamwork is influential in efficient
handling of operations.
 The Airline’s Employee Profit-sharing plan which makes at least 25% of the employee’s
share of the plan invested in Southwest Airlines stock, acts as a major motivating factor
of the workforce making it more flexible and productive.
 Southwest Airlines excludes meals and provides for light snacks as inflight refreshment,
so as to minimize the overhead expenses and save the resources.

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Capabilities:
Southwest Airlines focuses mainly on point-to-point service, rather than the hub-and-spoke
service provided by major US airlines. Point-to-point service allows for direct nonstop routing by
minimizing connections, delays and total trip time. As a result, approximately 71% of Southwest
Airlines’ customers flew nonstop in FY2011. During the year, the company's average aircraft trip
stage length was 664 miles with an average duration of approximately 1.8 hours. This service
also enables the company to provide its markets with frequent, conveniently timed flights and
low fares.
The management of Southwest Airlines is considered to be the most dynamic of all time. The
policies introduced by Southwestern Airline’s top management is considered to be intuitive and
effective by many industrial analysts.
Even as its general expansion strategy has been more of an organic growth. In May 2011, the
company acquired AirTran Holdings, the parent company of AirTran Airways, one of the largest
low cost scheduled airlines in the US. The transaction was valued at approximately $1.4 billion.
The acquisition provides Southwest Airlines an opportunity to grow its presence in key markets
it didn't yet served. Moreover, it would allow the company to expand its presence in slot-
controlled markets where the company currently has little (New York LaGuardia) or no (Ronald
Reagan Washington National Airport) service; expand its service in other key domestic markets,
including Boston and Baltimore and to add destinations to its route system; and provide access to
near-international leisure markets in the Caribbean and Mexico, as well as smaller cities. And
while pilots in most other airlines pilots are unionized, there are no such union affiliations in the
Southwest Airlines which therefore does not restrict the pilot’s flying hours for a particular
period.

Distinctive Capabilities:
There are many distinctive capabilities of Southwest Airlines that makes it a different and the
most successful carrier:
 They operate 1 type of aircraft Boeing 737, which lowers maintenance, training and
inventory costs to a huge extent.
 They hedge aggressively on fuel which allowed them to be profitable when other airlines
were losing money, Southwest have maintained a cost per seat mile of $0.12, which is
around 25% cheaper than its competitors.
 They have a strong domestic network.
 Their philosophy is to treat their employees well and put them ahead of their customers.
The benefits it gives it employees, include: profit-sharing and empowering employees to
make decisions. The logic is if the employees are valued, they will treat the customers
well and that will spread the reputation of the Airlines further.
 The airline employs a fun and casual work environment. Southwest Airlines is popular
for asking its candidates one time to change from suit clothing to Bermuda shorts. Those
who were fast enough were selected.
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  No formal hierarchy is enforced. It’s not uncommon to see the pilots assisting the flight
stewards in helping them check the passengers in the plane or cleaning the plane. This
helps in achieving the swiftest turnaround of the aircraft.
 It is the only carrier that does not charges any nominal amount for changing the date of
the ticket.
Q3. How do Southwest’s resources, capabilities, and distinctive competencies translate into
superior financial performance?
Southwest’s top management has cleverly made these three factors to their advantage. At one
point they have stressed on maintaining a lower cost structure by keeping a standardized fleet
with minimal inflight meal and entertainment amenities, a workforce motivated for quick aircraft
turnaround and an aggressive fuel hedging program, however at the same time they have equally
stressed on winning customer satisfaction which is seen by their stupendous customer retention.
They have respected the basic requirement of any passenger i.e. – to reach on time, by
maintaining a decent record of on schedule flights. On average there are 94 employees per
Southwest aircraft in contrast to competitors who have 130, and the Southwest staff serve on
average 2500 passengers per year compared to competitors 1000. Keeping the workforce number
minimal, they have cut off a major fraction of labor costs incurred generally by other carriers,
whilst not letting any shortcoming come in smooth running of operations. When the pilots of the
other carriers are affiliated to Unions which have restricted working hours at for one period,
Southwest Airlines pilots are not unionized under such regulations which allows them to work
smoothly unhindered. With the innovative profit sharing plan, they have wittily made each and
every employee his/her own performance appraiser, ensuring that no employee falters behind the
line. Applying its Point-to-Point transit system, its admirable how Southwest Airlines has
avoided the congested airports, thus not needing the dozens of gates or thousands of employees
to handle the banks of the flights that come in and then disperse, leading to reducing a major
fraction of the operational costs.
Q4. How secure is Southwest’s competitive advantage? What are the barriers to imitation
here?
Looking at the developments in the aviation industry till recent, it would be safe to say that
Southwest enjoys the most secure competitive edge than any other carrier. Its strategy, right from
having standardized fleet to having minimal but motivated employees while wittily introducing
cost-cutting initiatives like fuel-hedging and employee profit-sharing plan, have helped it gain a
benchmark position which cannot be easily touched by any of its competitors. With its punctual
flight record, pleasantly approachable staff, impressive Customer service, despite the fact that it
offers no-frills, there is still a high degree of customer satisfaction that continuously builds
customer loyalty for the company. This is one of the reasons why, even in the aftermath of the
9/11 terror attacks, when the entire aviation industry was reeling under the disastrous
consequences of running empty flights, Southwest Airlines not only was successful in
maintaining fully seated flights but also earned an ROIC of 5.8%. Its hiring process which lays
stress on applicants possessing teamwork skills and optimistic outlook has helped it shape a
dynamic and motivated workforce which not only helps in smooth functioning of an informal
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horizontal organization but also promotes accountability among the employees not just as
individual but as a team. Its method of offering differentiated products like Rapid Rewards
frequent flyer program have made it stand apart in the LCC sector. However even while being an
epitome of success in the Aviation industry, it has been unfeasible and impossible for
Southwest’s rival carriers to imitate its business model due to following factors:
 Southwest Airlines, in order to cut its maintenance, training and inventory costs had
standardized its fleet by Boeing 737 aircrafts; something which its rival cannot think of
doing. Its Cost Leadership is one of its vital factors which it has been able to stay ahead
of its rivals.
 While it follows a Point-to-Point transit system enabling it to have punctual and less cost-
incurring flight schedule, most of its competitors follows a Hub and Spoke transit
mechanism; and changing from the latter to the former is not recommendable at this
fragile state of the aviation industry.
 Southwest Airlines has a unique, thorough and highly selective hiring process which
ensures that its workforce has the requisite motivation at par with the spirit of the
Airlines. Now, this cannot be as easily applied by its rivals which are mostly very
hierarchical and formal.
 Southwest Airlines innovated the strategy of fuel hedging for a long time, something
which its rival cannot start and reap short-term benefits.
 With its unique way of communication to both prospective and incumbent passengers,
either by goofy humor or funny flight attendants, Southwest Airlines has been able to
sustain a Differentiation Leadership. No other carrier can practically think of depending
too much on its on-board staff in absence of any kind of inflight entertainment.
Hence, we can see how Southwest Airlines was successful in able to maintain both Cost
effectiveness as well as Customer loyalty and retention, through its innovative and foresighted
strategies.