SOUTHWEST AIRLINES COMES OF AGE

Southwest Airlines has perennially been considered a model of how an innovative

strategy combined with strong culture and a strong relationship between management and
employees can lead to business success. The company was founded in 1967 and was built on
low costs, labor harmony, simplicity, and rapid expansion. Although labor strife seems
endemic to the airline industry, Southwest always stood up for its workforce, which seemed
unflinchingly committed to the company’s success.

However, as the company has expanded and grown older, the original strategy seems
to be in peril. Mergers among the major airlines such as American/US Airways,
United/Continental, and Delta/Northwest have enabled them to reduce their cost structures
and come closer to Southwest on price. In addition, ultra-discount airlines, such as Spirit
Airlines, can undercut Southwest on price. Finally, airlines like JetBlue and Virgin America
compete for Southwest’s traditional middle-class customers.

While Southwest faces a number of competitive and technological challenges, its

labor costs stand front and center. Because Southwest is not expanding as fast, the company
cannot hire as many new employees at the lowest rungs of the wage scale. With 83% of its
workforce 223Page 102 unionized, Southwest now seeks to negotiate wage freezes and
tighten rules on sick time. In addition, the airline wants to hire more part-time workers and
has floated the idea of outsourcing a number of jobs.

Employees pine for the former CEO and co-founder, Herb Kelleher, who was beloved
by employees. Says Randy Barnes, a union representative for the ramp workers, “Ever since
Herb . . . left, this has been more of a corporation and less of a family.”

Southwest Airlines’ challenges face every company sooner or later. Although firm
success can be sustained for a number of years, at some point competition begins to take its
toll. In addition, with changes in leadership (Herb Kelleher retired from the CEO role and
handed it off to Gary Kelly in 2004), it is difficult to maintain the same strong culture. This
has profound effects on how people must be managed to sustain success amid a changing
competitive landscape.

In spite of these challenges, Southwest’s performance remains strong. The airline

made a record $2.24 billion in profits in 2016. In addition, the airline will continue to expand
internationally, providing new opportunities for revenue growth.
QUESTIONS

1. What do you think has made Southwest Airlines so successful?

2. What do you think are the major challenges facing Southwest?

3. How would a strategic approach to HRM help Southwest successfully address these
challenges?