Southwest Airlines - Assignment Report

Company Overview Task One Introduction No-frills airlines usually focus on low-cost strategies in every aspect of their business. The low-cost strategies can be implemented by applying various factors, such as using one type of airplane, using secondary airports with short flights, point-to-point transit with simplified routes, speedy turnaround times and assigning multiple roles to staff in order to reduce the labor cost. These types of strategies let you play a win-win situation because once the cost is reduced; it benefits the passengers as well as the company itself.

But in real time, it is not necessary that every low-cost carrier airline will apply all the above mentioned strategies, still they can achieve better results due to efficient implementation of such strategies. Pacific Southwest Airlines originated the concept of first low-cost carrier in May 1949. However, Southwest Airlines started in 1971 and achieving a significant profit every year since 1973. Such progress of low-carrier airlines causes problems for full-service airline because of competition on price. The price is the main factor for customers when selecting an airline.

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Between the years 2001 and 2003, a large number of full-service airlines faced heavy losses due to terrorism and wars. In these days, low-cost carriers like Southwest remained profitable, despite the destruction in aviation industry. As per the requirement, I selected a tool called “SWOT ANALYSIS” in order to analyze the company’s potential resource strengths and weaknesses, opportunities and threats. Following are the findings of my analysis: SWOT ANALYSIS Potential Resource Strengths and Competitive Capabilities: a)Low-Cost Operations Elimination of on-board service:

Southwest has eliminated the on-board services like entertainment, catering, seats reservations, airhostess and other complementary services. The objective of this elimination is to achieve the low-cost and better turnaround time. b)Low-Cost Operations Economy Class: In order to maintain the low-cost strategy, Southwest is focusing on the Economy Class passengers to get more travelers. Furthermore, the seat space has also been narrowed down to put more seats in the plane cabin. c)Work Environment Love, Care and Fun: Southwest Airlines believe in the fact that the organization should have open, enjoyable environment.

Employee productivity depends on their peace of mind during working hours. Southwest Airlines allow their employees to have fun and entertainment during working hours and the employees are not bound to any hard and fast restricted rules. And this results in a good productivity. Furthermore, to promote this corporate culture of fun and love, the Southwest is also listed on the New York Stock Exchange as “LUV”. A blog titled “The Nuts about Southwest” is also launched to create a personal love and fun relationship between the company bloggers and the readers. (http://www. blogsouthwest. om) d)Fast Turnaround Time: Southwest airlines have short flights in terms of time-period. This allows them to use their planes at maximum. The constant utilization of their aircrafts ensures the maximum revenue which improves the turnaround time for Southwest Airlines. e)One Type Aircraft: Southwest Airlines uses only a single type of aircrafts named “Boeing 737”. This benefits them in different areas such as spares and equipments can be easily replaced. Employees training reduce significantly. The maintenance cost for different types of aircrafts is usually very high. By using single ype of aircraft, Southwest cuts down their cost by a large number when purchasing or repairing aircrafts. Boeing 737 has low-fuel consumption and possesses low operating cost as compare to other aircrafts. f)Secondary Airports: Boeing 737 aircraft are smaller in size as compare to usual aircrafts therefore they can land and take off on secondary airports. This characteristic also leads to less airport fees as compare to primary airports where the fees is relatively very high. Secondary airports also help to avoid air-traffic delays that major airlines face on the primary airports.

Southwest used shuttle buses to send the passengers to their destinations. g)Human Resource Maximization Employees Multiple Roles: Southwest manages their personnel costs by applying multiple roles to one employee. Every flight has 3 or 4 attendants. All the attendants look after the ticket checking, cabin cleaning, selling foods and drinks. h)Direct Distribution Channels: Southwest easily saves 5% to 10% of every fare by selling the tickets directly to the customers. No wholesaler or ticket agent is involved in the middle. No one else enjoys this saving.

Customers can easily get the tickets on call or on internet as well by paying using Credit Cards. i)Customer Satisfaction Guaranteed: Southwest has been very successful to provide guaranteed customer satisfaction. Following is the statistics issued by US Department of Transportation Air Travels in February 2009 which shows the lowest customer complain ratio achieved by Southwest: *From the 2009 year U. S. Department of Transportation Air Travel Consumer Report Issued February 2010 j)On-time Flight Operations: Southwest airlines have been very efficient in their flights timings.

Following statistics shows that Southwest has secured first place in the list of On-time Performance Ranking: *From the 2009 year U. S. Department of Transportation Air Travel Consumer Report Issued February 2010 k)Strong Financial Position: Continuous profitable years have also been a potential strength and a competitive capability over the other airlines. The following income statement shows the past three year’s trend of Southwest’s Profitability: SOUTHWEST AIRLINES INCOME STATEMENT All numbers in USD $ thousands Source: http://finance. yahoo. com/q/is? =LUV+Income+Statement&annual Potential Resource Weaknesses and Competitive Deficiencies: a)Single Producer Dependability: One of the weaknesses is their dependability on one producer of Boeing 737 i. e. Boeing Commercial Airplanes. Since Southwest only uses a single type of aircraft, therefore this is one of the weakest areas for Southwest. Southwest will be directly affected if anything goes wrong with Boeing Commercial Airplanes. b)Inconvenient Booking: Flights booking become difficult at times because it is hard to find agents and everyone does not know the use of internet. )Business Class: Southwest focuses only on Economy Class and they narrowed down their seating as well to increase the capacity of seats in the cabin. This strategy losses a large market of business class customers who can pay better rates. Large airlines get benefits of the Business Class Customers whereas Southwest completely misses out this sector. d)Multi-Country Coverage: Southwest only provide travelling facility within the United States. They do not travel internationally. Therefore Southwest Airlines is missing out a large market for international travelling. )Passenger-Oriented Revenue: Southwest is a low-cost airline. Their revenues are totally dependent on the number of passengers fly in a trip. It means that one empty seat in any flight leads towards the losses. Higher the number of passengers in a flight, higher will be the revenue and lower the number of passengers in a flight, lower will be the revenue. f)Low Quality Mindset of Customers: Southwest targets the customers by charging them a low price. This can be their weakness for such customers who believes poor quality in low price.

There are customers who are willing to pay high rates keeping in mind that expensive airline is much better than the cheapest one. Task Two a)Southwest’s Overall Situation based on the critical factors highlighted in Task 1: The overall situation of Southwest Airlines is pretty shiny. They have achieved their goals in a very effective manner. Their strengths led them towards constant success. They have been the industry leader for past years in low-cost carriers. They have proved themselves as a POS (Positively Outrageous Service) to their customers.

Southwest gets the credit to discover a market segment who wants to have a comfortable as well as affordable travelling carrier within the United States. Southwest appeared in the State at the time when there was a need for domestic traveling but due to high rates for their competitors it was unable for customers to fly using a carrier. With the help of effective low-cost strategies, Southwest has been very successful in achieving profit for last consecutive years. Specially, in recession in the economy, Southwest produced a profitable year.

As mentioned above in the Income Statement, Southwest keeps on generating income for last years. Their performance has been outstanding in the air travel industry. The customers of Southwest are almost 100% satisfied with their product, quality and service. They have been top rated in performance ranking and they also achieved lowest ratio of customer’s complaints. The environment provided by the Southwest Airlines to their Employees is very loving and enjoyable. Their employees are highly motivated and the love to serve the customers with their personal care.

Apart from the successful story, there are some negative aspects of Southwest Airlines which affect their business. A very important and may be harmful for Southwest is the dependability on single producer of their Boeing 737 Aircraft. This bounds them to stick with one piece of source to run the business. Furthermore, the low-price strategy sometimes becomes disadvantage for them when it comes to be selected by the customers who are willing to pay high rates and believing low quality in low rates. Similarly, the processing within the United States also bounds them to capture the market exists beyond the national boundaries.

There is a good opportunity to enter into a new market where the number of customers will increase dramatically. Despite the low prices, Southwest has been achieved constant incomes but they are always threatened by fuel prices and other economic conditions. In a nut shell, Southwest is the champ of various fields in the industry but at the same time they are lacking with some required strategic action that needs to be taken as soon as possible so that they can maintain the same performance later on. b)Actions / Guidelines / Suggestions for Improving Company’s Strategy:

After evaluating all the critical factors in Task 1, I have reached out to the following suggestions or guidelines that need to be applied in Southwest Airlines to improve their current strategy: 1. Internet Marketing Opportunities should be pursued actively. 2. Keep on Hedging Fuel Prices. 3. In order to avoid disruptive contract negotiations, improve employee management relationships. 4. Start capturing outside the United States in order to increase the Market Share. 5. Current and old employees can be retained by providing them structured learning programs. 6.

No need to purchase new crafts at this point in time therefore it can be deferred. 7. Keep on improving Turnaround Times. 8. Offer promotional campaigns to the customers such as “Buy One, Get One Free” ticket offer, to improve off-peak flights. 9. Continue to keep prices as low as possible so that the competitors go out from the business. 10. Southwest should adopt new technologies like ticketless travel and PC Reservations. Implementation Short-Term Goals: Most the business strategies need to be implemented immediately and should have started from department to department. Mid-Term Goals:

Strategies for improving business operations and employees relationships can be implemented in a span of one year maximum, not more than one year. Long-Term Goals: The higher level of management should decide the strategic changes such as expansion, merger or purchase of Boeing should be planned for next 5 to 10 years. Task Three a)Human Resource Practices of Southwest Airlines: Following are the practices taken in place by Southwest Airlines: a) Employees Oriented Company: Usually companies believe that their customers are more important than anything else and customers are always treated on high priority.

But if you look at Southwest Airlines they have an opposite mindset. They always provide first priority to their Employees and then they focus on the Customers. Southwest knows that to provide superior services to the customers, employees have to be honest and passionate with their jobs. To get the better from the employees, Southwest always focuses on well-being with its employees and provides them a job security as well. Southwest applies the concept that “Keep employees happy, then they will customers happy. (Thompson et al. 2004)”.

In view of being more personal with the employees, Southwest changed their Personnel Department name to People Department. Furthermore, the head of department given a designation of “Vice President of People”. The same has been done Starbucks. Starbucks approach is that your comparator can copy your product but it is not possible to copy your people. The best spokesperson of a company and its product is the one who is happy with his job, employer and colleagues. If employees are happy, customers will be more than happy as a result. b) Better Compensation for Employees:

Southwest’s employees are paid on an average of industry pay scale. The benefits and allowances offered by Southwest to their employees are better than other airlines. According to survey, Southwest pays their pilots normally 10% above the industry average. Profit sharing plan is introduced by Southwest in the air lines industry during 1973. Different saving plans and stock option programs are managed by Southwest for different group of employees. About 10% of Southwest’s outstanding shares owned by the employees of the company. c) Labor Union Relationship: More than 80% of Southwest’s workforce is represented by the Unions.

Therefore Southwest Airlines is one of the highly unionized airlines in the United States. Southwest has been very effective and successful in dealing with labor unions. Southwest itself appreciate and encourage union members to identify issues or problems faced by the employees. The agreement with the unions represent open environment for labor force to work in without any restrictions and this act helps in improving productivity. d) Job Security: Job Security is one of the major problems for any employee in any organization. No one can guarantee you that you can work in our company till you retirement.

In Southwest Corporate Culture, there is no policy to lay-off the employees. A good relationship has been built between among Southwest, Unions and employees during lifetime of the company by completely avoiding the lay-offs. “There was a time in Southwest in early days, when they had four Boeings and less than 70 employees. Due to hard times, they were unable to meet the payroll and they had two choices; either sell one of its planes or lay off people. Southwest sold its boeing and asked their employees to cut the turnaround time to down to 15 minutes from 55 minutes.

Everybody in the company from Pilots to ramp agents was pitching what is necessary to help the company. ” e) Management Open Door Policy: In large organizations, it is very difficult for employees to communicate with anyone in higher management. Employees can only communicate to their line managers regarding their problems or issues. Unlikely, in Southwest, the managers and seniors from management are directed to spend one-third of their time out of their office, observing the operations going on in the fields, communicating with employees and listening to their concerns.

This is normally done by the leaders who directly want to know about the execution of their policies. They regularly visit the different fields and departments and spend some time with different people at every level. Managers are directed to be there personally to listen the people, not via suggestion box. Southwest always suggests to responsive on flight to the customers when they need or if they have any query. Southwest always encourages their employees to show up their concerns. Employees feel free to share the ideas or suggestions with the managers and this reduces the cost and improves efficiency.

Employees suggested Southwest to buy the parts and assemble PCs themselves for half of the price of a new PC. This as a result helped Southwest to save a million dollar. Southwest’s clerks brought an idea of using E-Tickets rather than paper tickets. Some years earlier, it was written in company policy that: “No Employee will ever be punished for using good judgment and good old common sense when trying to accommodate a Customer – no matter what our rules are. Let’s start leaning towards our Customers again – not away from them.

Let’s start encouraging our line employees to be a little more flexible and to take that extra minute to accommodate special needs. Let’s start encouraging our supervisors to give our Customers the benefit of doubt. ” A simple hierarchy of four layers of management between a frontline manager and CEO lets things done immediately and efficiently without any delays. Southwest believes that employees should feel comfortable in taking their own decisions and undertake their own efforts. References * Southwest Airlines: Culture, Values and Operating Practices (in Thompson, A. A. Strickland. A. J. and Gamble, J. (2005) Crafting and Executing Strategy (Fourteenth Edition), McGraw-Hill, NewYork. * Southwest Airlines: A case study linking employee needs satisfaction and organizational capabilities to competitive advantage, Hallowel R. * Huselid, M. (1995) The impact of human resource management practices on turnover, productivity and corporate financial performance. Academy of Management Journal * Middaugh D. J. (2007). Are you ‘nuts’? Lessons from Southwest Airlines. (p. 193). Nursing Management. MedSurg Nursing * Gibson J. W. & Blackwell C. W. (1999).

Flying High with Herb Kelleher: A Profile in Charismatic Leadership. (p. 120). Journal of Leadership Studies. * Spinetta L. (2006). Fuel hedging: lessons from the airlines. (p. 30). Air Force Journal of Logistics, Vol. 30, Iss. 3 * Daraban, I. B. (2007). Low cost carrier entry, incumbent responses and spatial competition in the United States airline industry. The Florida State University. * Fortune Magazine – April 2000 * http://www. southwest. com * http://www. finance. yahoo. com * http://finance. yahoo. com/q/is? s=LUV+Income+Statement&annual * http://www. airasia. com


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