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Background: Southwest Airlines is the greatest airline measured by number of passengers carried each year within the United States. It is likewise known as a ‘discount airline’ equated with it is big rivals in the industry. Rollin King and Herb Kelleher founded Southwest Airlines on June 18, 1971. Its initial flights were from Love Field in Dallas to Houston and San Antonio, short hops with no-frills service and a simple fare structure. The airline started out with one simple strategy: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, persons will fly your airline.” This approach has been the key to Southwest’s success. Currently, Southwest serves regarding 60 cities (in 31 states) with 71 million total passengers carried (in 2004) and with a total operating revenue of $6.5 billion. Southwest is swopped publicly beneath the symbol “LUV” on NYSE. Facts: * The basi major airline to fly a single type of aircraft (Boeing 737s) * The firstborn major airline to offer ticketless travel scheme wide including a general flier program based on number of trips and not number of miles flown. * The initial airline to offer a profit-sharing program to it is Employees (instituted in 1973). * The basi major airline to fabricate a Web web site and offer online booking. In 2001, regarding 40 percent ($2.1 billion) of it is passenger revenue was generated through online bookings at [http://www.southwest.com]. Southwest’s cost per booking thru the Internet is with regards to $1, equated to a cost per booking through travel agents of $6 to $8. Key competitory advantages: * Low Operational costs / High Operational Efficiency * Award winning client service * Human Resource exercises / Work culture Operations Analysis – Competitive Dimensions: Southwest distinctly has a distinct vantage equated to other airlines in the industry by executing an effective and effective operations scheme that forms an primary pillar of it is overall corporate strategy. Given beneath are a great deal of competitory dimensions that will be studied in this paper. 1. Operational Costs and Efficiency 2. Customer Service 3. Employee/Labor Relations 4. Technology 1. Operational Costs and Efficiency After all, the airline industry overall is in shambles. But, how does Southwest Airlines stay profitable? Southwest Airlines has the lowest costs and firmest remainder sheet in it is industry, according to it is chairman Kelleher. The two greatest operating costs for any airline are – labor costs (approx 40%) followed by fuel costs (approx 18%). Some other ways that Southwest is capable to keep their operational costs low is – flying point-to-point routes, choosing secondary (smaller) airports, carrying consistent aircraft, preserving high aircraft utilization, advancing e-ticketing etc. Labor Costs The labor costs for Southwest specifically accounts for regarding 37% of it is operating costs. Perhaps the most critical factor of the successful low-fare airline business model is achieving significantly higher labor productivity. According to a recent HBS Case Study, southwest airlines is the “most to a great extent unionized” US airline (about 81% of it is laborers belong to an union) and it is salary rates are considered to be at or above intermediate equated to the US airline industry. The low-fare carrier labor vantage is in much more flexible work rules that concede cross-utilization of almost all workers (except where disallowed by licensing and safety standards). Such cross-utilization and a long-standing culture of joint operation amongst labor groups translate into lower unit labor costs. At Southwest in 4th quarter 2000, total labor expense per available seat mile (ASM) was more than 25% underneath that of United and American, and 58% less than US Airways. Carriers like Southwest have a immense cost vantage over network airlines plainly because their workforce generates more output per employee. In a study in 2001, the productivity of Southwest workers was over 45% higher than at American and United, in spite of the substantially longer flight lengths and more spectacular intermediate aircraft size of these network carriers. Therefore by it is relentless pursuit for lowest labor costs, Southwest is capable to in a positive manner affect it is bottom line revenues. Fuel Costs Fuel costs is the second-largest expense for airlines after labor and accounts for in regards to 18 percent of the carrier’s operating costs. Airlines that want to prevent big swings in operating expenditures and bottom line profitability choose to hedge fuel prices. If airlines may control the cost of fuel, they may more accurately estimate budgets and forecast earnings. With growing contest and air travel getting a commodity business, being competitory on price was key to any airline’s survival and success. It became hard to pass higher fuel costs on to passengers by raising ticket prices due to the highly competitory nature of the industry. Southwest has been capable to with great success employ it is fuel hedging scheme to save on fuel disbursements in a big way and has the biggest hedging position amidst other carriers. In the second quarter of 2005, Southwest’s unit costs fell by 3.5% in spite of a 25% increase in jet fuel costs. During Fiscal year 2003, Southwest had much lower fuel expense (0.012 per ASM) equated to the other airlines with the exception of JetBlue as illustrated in exhibit 1 below. In 2005, 85 per cent of the airline’s fuel needs has been hedged at $26 per barrel. World oil prices in August 2005 reached $68 per barrel. In the second quarter of 2005 alone, Southwest achieved fuel savings of $196 million. The state of the industry likewise proposes that airlines that are hedged have a competitory vantage over the non-hedging airlines. Southwest declared in 2003 that it would add performance-enhancing Blended Winglets to it is current and future fleet of Boeing 737-700’s. The visually distinguishable Winglets will improve performance by extending the airplane’s range, saving fuel, letting down engine maintenance costs, and reducing takeoff noise. Point-to-Point Service Southwest operates it is flight point-to-point service to maximize it is operational efficacy and stay cost-effective. Most of it is flights are short hauls averaging with regards to 590 miles. It uses the scheme to keep it is flights in the air more many times and consequently achieve better capacity utilization. Secondary Airports Southwest flies to secondary/smaller airports in an venture to reduce travel delays and consequently provide magnificent service to it is customers. It has led the industry in on-time performance. Southwest has also been capable to trim down it is airport operations costs comparatively better than it is rival airlines. Consistent aircraft At the heart of Southwest’s success is it is single aircraft strategy: Its fleet comprises wholly of Boeing 737 jets. Having mutual fleet significantly simplifies scheduling, operations and flight maintenance. The training costs for pilots, ground crew and mechanics are lower, because there’s only a single aircraft to learn. Purchasing, provisioning, and other operations are likewise vastly simplified, thereby letting down costs. Consistent aircraft also enables Southwest to apply it is pilot crew more efficiently. E-Ticketing The idea of ticketless travel was a major vantage to Southwest because it could lower it is distribution costs. Southwest became electronic or ticketless back in the mid-1990s, and today they are when it comes to 90-95% ticketless. Customers who use credit cards are entitled for online transactions, and today Southwest.com bookings account for with regards to 65% of total revenue. The CEO Gary Kelly thinks that this idea would grow further and that he wouldn’t be astonished if e-ticketing accounted for 75% of Southwest’s revenues by end of 2005. In the past, when there was a 10% travel agency commission paid, it employed to cost when it comes to $8 a booking. But currently, Southwest is paying among 50 cents and $1 per booking for electronic dealings that translate to huge cost savings. 2. Employee and Labor Relations Southwest has been highly regarded for it is innovative management style. It maintains a relentless focus on high-performance relationships and it is people-management exercises have been the key to it is unparalleled success in the airline industry. Mission Statement To Our Employees The Southwest mission statement shows that the company has a strong commitment to it is employees. The company affords the same respect to it is workers that is provided to it is customers. The Southwest mission statement is distinctive in that it recognizes the importance of it is laborers within the broader business strategy, which emphasizes superb client service and operational efficiency. The laborers reciprocate the respect, commitment and trust that Southwest demonstrates. Southwest workers are known for their loyalty, dedication, attitude and innovation. The workers are the distinguishing factor among Southwest and the rest of the airline industry. Hiring Southwest hiring policy is distinguishable not only within the airline industry, but likewise more broadly, and revolves around finding humans with the right attitude that will thrive in the Southwest culture. Extensive procedures are employed to hire for positive attitude and dedication. Those who do not posses those calibers are weeded out. Colleen Barrett, a non-operational officer at Southwest, states that “Hiring is critical, because you cannot institutionalize behavior. Instead, you will have to discern those persons who already exercise the behavings you are looking for. Then you may concede Employees to be themselves and make conclusions in regards to Customer service based on mutual sense and their natural inclinations.” 1 Recruiting and interviewing at Southwest is a two-step process. The basi step is a group interview, conducted by employees, where communication accomplishments of potential nominees are evaluated. The next steps in this routine are one on one interview, where the candidates’ complex mental states and orientation toward serving others are evaluated. These hiring criteria apply to all occupation functions since all Employees at Southwest play a client service role. A critical portion of Southwest operational scheme is that each occupation at Southwest is a client service position, whether it directly applies to the client or whether it is internal. The table underneath shows that even even though Southwest is the most to a great extent unionized airline, at approximately 80%, that contract negotiations amid the unions and Southwest are much shorter in duration than of the other major carriers. This shows the quality of kinship that Southwest has with it is workers and with the unions that represent them. Culture Southwest was formulated as a dissimilar kind of company and from it is beginnings a distinguishable culture was nurtured. In 1990 Colleen Barrett formed the Southwest Culture Committee. This is distinguishable within the industry and amid all huge companies. The committee also has a mission statement: “This group’s goal is to help develop the Southwest spirit and culture where needed; to enrich it and make it better where it already exists; and to liven it up in places where it might be “floundering”. In short, this group’s goal is to do “whatever it takes” to create, enhance, and enrich the special Southwest spirit and culture that has made this such a fantasti Company/Family.” It is this distinctive approach to company values that has invented a culture that differentiates itself from others. Southwest’s culture is the reason why it is successful. 3. Customer Service The Mission of Southwest Airlines Approach Herb Kelleher, founder of Southwest, has been cited as saying that “We’re in the Customer service business; we just take place to provide airline transportation”.2 Award winning client service is a distinguishing characteristic of Southwest and it is referred to internally as “Positively Outrageous Service”. It means that from the top to bottom everyone does whatsoever he or she may to satisfy the customer. This includes Herb Kelleher, who has been known for helping out baggage handlers on Thanksgiving. It is through emphasizing the client and employee that Southwest is competent to discern itself from others in the airline industry. On a more technical level, each employee or group within Southwest has his or her own customer. This means that each employee ‘serves’ in one way or another in spite of not being directly involved with the passenger. The mechanic’s client is the pilot and the caterer’s is the flight attendant. Results It may be said that the “Positively Outrageous Service” that is distinguishable to Southwest “is not the result of a department, or a program, or a mandate from management. It is not secondary to the product; it is the product.” This approach produces the conditions where Employees are more likely to treat clients in ways that distinguish the company from others. There are numerous accounts of passengers who have received particular treatment from Southwest employees. The question that needs to be answered is how Southwest’s client service is dissimilar and why? Is it mutual for clients of other airlines to rave regarding their special service? The answer is that it is not. While Southwest does not have a monopoly on humans who are kind and who are more than willing to go above and beyond to satisfy a customer, such conduct is nurtured at Southwest to a much more outstanding extent. It may then be concluded that the client service that is inherent to Southwest is a share of it is culture. This culture is supported through employee encouragement to do the extra to satisfy the customer. This approach inspires people who would normally only on occasion go out of their way to aid someone, to become consistent performers that offer special service all the time. Southwest laborers are what discern it is client service from the other airlines. 4. Technology Southwest utilizes technology in galore ways to fulfill it is business goals intended to be attained and maintain it is effective operations. According to it is CEO, technology equals productivity. Launched in 1996, ticketless travel was initial introduced by Southwest. On May 1st 2000, Southwest Airlines introduces “SWABIZ,” a portal that helps company travel managing directors in booking and tracking trips made through it is web internet site [http://www.southwest.com]. There are a heap of new engineering science initiatives being undertaken presently and a great deal of are in the pipeline. Bar codes in Boarding Passes Southwest Airlines has invested $12 million for the duration of the past three years to standardize corporate and terminal operations on when it comes to 10,000 Dell OptiPlex desktop and Latitude notebook computers according to it is company executives. Southwest wanted to replace it is well known, brightly colored plastic boarding passes with an electronic scheme with bar-code paper boarding passes. So it installed regarding 350 touch screen ticket readers powered by Dell OptiPlex desktops. The bar code gives Southwest more data to mechanically reconcile the number of boarding passes with the number of passengers that in truth board the plane. Although the engineering will aid Southwest Airlines stay effective by consolidating passenger info for the company’s 3,000 daily flights, there were worries it could lengthen the time to get travelers on board. However it was found that scanning each bar code on the boarding passes didn’t increase or shorten boarding schedules, but it did take minutes from administrative processes, such as looking up client records. The new paper bar code system is giving Southwest ticket agents the capacity to match a client record within having to scroll through and log into multiple software screens. The procedure is much more automated. Once the bar code on the boarding pass is scanned at the terminal gate it checks off the person from the passenger list in real time. The old procedure was manual that involved finding the information, scrolling through various software screens from reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The company is in the procedure of replacing client service back-office instrumentation at airports including at it is headquarters in Dallas. Software Upgrades Software applications, such as those used by clerks to check in passengers, are being replaced. Southwest Airlines’ internally written “Airport Application Suite” is expected to rollout next year as the company transitions from green screens to Window-based user interface. Similar to Wal-Mart Stores Inc., Southwest Airlines believes in devising in-house the software that runs it is operations. The company uses very little off-the-shelf software. There are among 75 and 100 projects in the works each year supported by approximately 900 IT employees. RFID Radio frequency identification technology, a favorable substitute to bar-coding for luggage identification, is likewise on Southwest’s radar. It plans to test RFID engineering science sometime in 2006. Even though, Southwest is playing a little catch-up with other airlines such as Air Tran, Alaska and Champion Airlines, in a good deal of cases they are competent leapfrog to more sophisticated apps without apparent effort having waited longer. Challenges: Southwest has emerged very successful, in spite of the most bothered times in the airline market. However, it faces new challenges in the face of increasing contest from other low fare airlines such as JetBlue, ATA airlines, America West. Reserved Seating Due to increasing security guidelines since September 2001, Southwest would need to prepare for assigned (reserved) seating to track it is in-flight passengers. This modify will implicate big engineering science investments and may affect it is gate operations negatively since the current way of unassigned seating has helped in quick gate turnarounds. Passenger Demand The keep-it-simple system of belief has served Southwest well. But as it is own business grows and grows more complex, with plans to buy dozens of new aircraft and an expected upsurge in passenger traffic to in regards to 80 million boarding’s a year, the simplicity system that has been reflected in the airline’s IT doctrine is evolving. The CIO Tom Nealon says that “It’s time to adjust our business processes for efficiency. As our airline scales for us to provide the same kind of high-touch client service, we have to automate a lot of things we’ve been competent to do without technology previously. The challenge is doing that without conceding the client touch.” Southwest is also acutely carrying out or participate in client kinship management (CRM) proficiencies and has apps to get clear or deep perception into customer’s wants and dislikes. According to an consultation with it is CEO Gary Keller, Southwest has it is focus on bettering in two areas – customer’s airport experience and in-flight experience. In-Flight Entertainment In an overall effort to improve customer’s in-flight experience, in-flight amusement is something that Southwest is presently assessing and which JetBlue has been very successful at already because of it is introduction in it is long-haul flights. In comparison, Southwest has 415 airplanes to consider and that represents an investment decision at a whole new dimension. Additionally, Southwest has to consider how things may fit into their environment. At this point, 60% of it is service is still very short haul. Southwest needs to be mindful of the fact that a sure approach that has been successful for it is challenger may not be inevitably work to it is advantage. Summary: Southwest has long been regarded as a benchmark in it is industry for operational excellence. Southwest Airlines is a fine example of a company that is consecrated to it is core competencies – effective operations to drive it is low cost structure, outstanding deliverance of client service and modern HR management practices. We hope this paper provided a good clear or deep perception into Southwest operations, as part of it is overall strategy, to achieve success and gain competitory advantage. References: 1. [http://www.southwest.com] (Southwest airlines official web site) 2. “Southwest keeps it simple” – Air Transport World, April 2005, Pg 36 3. “Around the World on $48 (or So): How High Can Discount Airlines Fly?“ Strategy Management – Knowledge@ Wharton Newsletter Oct 5, 2005 4. TechWeb – [http://www.techweb.com/wire/ebiz/173601227] 5. “Southwest’s Strategy for Success: Consolidate!” – Oracle Magazine (Sept/Oct 2004 edition) http://www.oracle.com/technology/oramag/oracle/04-sep/o54swest.html 6. “Southwest Airlines: High Tech, Low Costs” – Eweek.com, April 2005 7. “Jet Fuel Hedging Strategies: Options Available for Airlines and a Survey of Industry Practices” – Kellogg School of Management Research Paper, Spring 2004 8. Winning Behavior: What the Smartest, Most Successful Companies Do Differently, Terry R. Bacon and David G. Pugh, 2003 9. Time Magazine, Oct 28th 2002 issue, Vol. 160 Issue 18, p. 45 10. “Wings Of Change”,Information Week, March 28, 2005, 11. Labor Contract Negotiations in the Airline Industry, Monthly Labor Review, July 2003, page 24 |
