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Southwest Airlines is the largest airline measured by estimate of passengers carried each year within the United States. It is also known as a ‘discount airline’ compared with its large rivals in the industry. Rollin King and Herb Kelleher founded Southwest Airlines on June 18, 1971. Its first flights were from Love Field in Dallas to Houston and San Antonio, short hops with no-frills service and a easy fare structure. The airline began with one easy strategy: “If you get your passengers to their destinations when they want to get there, on time, at the bottom potential fares, and make darn sure they have a good time doing it, habitancy will fly your airline.” This arrival has been the key to Southwest’s success. Currently, Southwest serves about 60 cities (in 31 states) with 71 million total passengers carried (in 2004) and with a total operating income of .5 billion. Southwest is traded publicly under the emblem “Luv” on Nyse.
Facts:
* The first major airline to fly a singular type of aircraft (Boeing 737s)
* The first major airline to offer ticketless voyage theory wide including a frequent flier program based on estimate of trips and not estimate of miles flown.
* The first airline to offer a profit-sharing program to its Employees (instituted in 1973).
* The first major airline to institute a Web site and offer online booking. In 2001, about 40 percent (.1 billion) of its passenger income was generated through online bookings at [http://www.southwest.com]. Southwest's cost per booking via the Internet is about , compared to a cost per booking through voyage agents of to .
Key competitive advantages:
* Low Operational costs / High Operational Efficiency
* Award winning buyer service
* Human reserved supply practices / Work culture
Operations pathology – competitive Dimensions:
Southwest clearly has a clear benefit compared to other airlines in the manufactures by executing an sufficient and sufficient operations strategy that forms an foremost pillar of its comprehensive corporate strategy. Given below are some competitive 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 manufactures comprehensive is in shambles. But, how does Southwest Airlines stay profitable? Southwest Airlines has the bottom costs and strongest balance sheet in its industry, according to its chairman Kelleher. The two biggest operating costs for any airline are – labor costs (approx 40%) followed by fuel costs (approx 18%). Some other ways that Southwest is able to keep their operational costs low is - flying point-to-point routes, selecting secondary (smaller) airports, carrying consistent aircraft, maintaining high aircraft utilization, encouraging e-ticketing etc.
Labor Costs
The labor costs for Southwest typically accounts for about 37% of its operating costs. Maybe the most principal element of the flourishing low-fare airline firm model is achieving significantly higher labor productivity. according to a modern Hbs Case Study, southwest airlines is the “most heavily unionized” Us airline (about 81% of its employees belong to an union) and its wages rates are carefully to be at or above midpoint compared to the Us airline industry. The low-fare carrier labor benefit is in much more flexible work rules that allow cross-utilization of virtually all employees (except where disallowed by licensing and security standards). Such cross-utilization and a long-standing culture of cooperation among labor groups translate into lower unit labor costs. At Southwest in 4th quarter 2000, total labor cost per available seat mile (Asm) was more than 25% below that of United and American, and 58% less than Us Airways.
Carriers like Southwest have a expansive cost benefit over network airlines simply because their workforce generates more yield per employee. In a study in 2001, the productivity of Southwest employees was over 45% higher than at American and United, despite the substantially longer flight lengths and larger midpoint aircraft size of these network carriers. Therefore by its relentless chase for bottom labor costs, Southwest is able to actually impact its bottom line revenues.
Fuel Costs
Fuel costs is the second-largest cost for airlines after labor and accounts for about 18 percent of the carrier's operating costs. Airlines that want to preclude huge swings in operating expenses and bottom line profitability choose to hedge fuel prices. If airlines can operate the cost of fuel, they can more accurately estimation budgets and forecast earnings. With growing competition and air voyage becoming a commodity business, being competitive on price was key to any airline’s survival and success. It became hard to pass higher fuel costs on to passengers by raising label prices due to the very competitive nature of the industry.
Southwest has been able to successfully implement its fuel hedging strategy to save on fuel expenses in a big way and has the largest hedging position among other carriers. In the second quarter of 2005, Southwest’s unit costs fell by 3.5% despite a 25% growth in jet fuel costs. During Fiscal year 2003, Southwest had much lower fuel cost (0.012 per Asm) compared to the other airlines with the irregularity of JetBlue as visible in exhibit 1 below. In 2005, 85 per cent of the airline’s fuel needs has been hedged at per barrel. World oil prices in August 2005 reached per barrel. In the second quarter of 2005 alone, Southwest achieved fuel savings of 6 million. The state of the manufactures also suggests that airlines that are hedged have a competitive benefit over the non-hedging airlines. Southwest announced in 2003 that it would add performance-enhancing Blended Winglets to its current and future fleet of Boeing 737-700’s. The visually distinctive Winglets will enhance performance by extending the airplane’s range, recovery fuel, lowering machine maintenance costs, and reducing takeoff noise.
Point-to-Point Service
Southwest operates its flight point-to-point service to maximize its operational efficiency and stay cost-effective. Most of its flights are short hauls averaging about 590 miles. It uses the strategy to keep its flights in the air more often and therefore accomplish great capacity utilization.
Secondary Airports
Southwest flies to secondary/smaller airports in an exertion to sacrifice voyage delays and therefore furnish perfect service to its customers. It has led the manufactures in on-time performance. Southwest has also been able to trim down its airport operations costs relatively great than its rival airlines.
Consistent aircraft
At the heart of Southwest's success is its singular aircraft strategy: Its fleet consists exclusively of Boeing 737 jets. Having common fleet significantly simplifies scheduling, operations and flight maintenance. The training costs for pilots, ground crew and mechanics are lower, because there's only a singular aircraft to learn. Purchasing, provisioning, and other operations are also vastly simplified, thereby lowering costs. Consistent aircraft also enables Southwest to use its pilot crew more efficiently.
E-Ticketing
The idea of ticketless voyage was a major benefit to Southwest because it could lower its distribution costs. Southwest became electronic or ticketless back in the mid-1990s, and today they are about 90-95% ticketless. Customers who use credit cards are eligible for online transactions, and today Southwest.com bookings catalogue for about 65% of total revenue. The Ceo Gary Kelly thinks that this idea would grow further and that he wouldn't be surprised if e-ticketing accounted for 75% of Southwest’s revenues by end of 2005. In the past, when there was a 10% voyage agency commission paid, it used to cost about a booking. But currently, Southwest is paying between 50 cents and per booking for electronic transactions that translate to huge cost savings.
2. Worker and Labor Relations
Southwest has been very regarded for its innovative administration style. It maintains a relentless focus on high-performance relationships and its people-management practices have been the key to its unparalleled success in the airline industry.
Mission Statement
To Our Employees
“We are committed to furnish our Employees a stable work environment with equal opening for studying and personal growth. Creativity and innovation are encouraged for enhancing the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the club that they are imaginable to share externally with every Southwest Customer.”
The Southwest mission statement shows that the firm has a strong commitment to its employees. The firm affords the same respect to its employees that is provided to its customers. The Southwest mission statement is unique in that it recognizes the importance of its employees within the broader firm strategy, which emphasizes superb buyer service and operational efficiency. The employees reciprocate the respect, loyalty and trust that Southwest demonstrates. Southwest employees are known for their loyalty, dedication, attitude and innovation. The employees are the distinguishing factor between Southwest and the rest of the airline industry.
Hiring
Southwest hiring policy is unique not only within the airline industry, but also more broadly, and revolves nearby seeing habitancy with the right attitude that will thrive in the Southwest culture. comprehensive procedures are employed to hire for clear attitude and dedication. Those who do not posses those qualities are weeded out. Colleen Barrett, a non-operational officer at Southwest, states that
“Hiring is critical, because you cannot institutionalize behavior. Instead, you must recognize those habitancy who already practice the behaviors you are seeing for. Then you can allow Employees to be themselves and make decisions about buyer service based on common sense and their natural inclinations.” 1
Recruiting and interviewing at Southwest is a two-step process. The first step is a group interview, conducted by employees, where communication skills of potential candidates are evaluated. The next steps in this process are one on one interview, where the candidates' attitudes and orientation toward serving others are evaluated. These hiring criteria apply to all job functions since all Employees at Southwest play a buyer service role. A principal part of Southwest operational strategy is that every job at Southwest is a buyer service position, either it directly applies to the buyer or either it is internal.
The table below shows that even though Southwest is the most heavily unionized airline, at roughly 80%, that compact negotiations between the unions and Southwest are much shorter in duration than of the other major carriers. This shows the quality of association that Southwest has with its employees and with the unions that represent them.
Culture
Southwest was created as a distinct kind of firm and from its beginnings a unique culture was nurtured. In 1990 Colleen Barrett formed the Southwest Culture Committee. This is unique within the manufactures and among all large companies. The committee also has a mission statement:
“This group's goal is to help generate the Southwest spirit and culture where needed; to enrich it and make it great 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 breathtaking Company/Family.”
It is this unique arrival to firm values that has created a culture that differentiates itself from others. Southwest’s culture is the intuit why it is successful.
3. buyer Service
The Mission of Southwest Airlines
The mission of Southwest Airlines is dedication to the top quality of buyer service delivered with a sense of warmth, friendliness, individual pride, and firm Spirit.
Approach
Herb Kelleher, founder of Southwest, has been quoted as saying that "We're in the buyer service business; we just happen to furnish airline transportation".2 Award winning buyer 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 every person does anything he or she can to satisfy the customer. This includes Herb Kelleher, who has been known for helping out baggage handlers on Thanksgiving. It is through emphasizing the buyer and Worker that Southwest is able to differentiate itself from others in the airline industry. On a more technical level, each Worker or group within Southwest has his or her own customer. This means that every Worker ‘serves’ in one way or someone else despite not being directly complicated with the passenger. The mechanic’s buyer is the pilot and the caterer’s is the flight attendant.
Results
It can be said that the "Positively Outrageous Service" that is unique to Southwest “is not the effect of a department, or a program, or a mandate from management. It is not secondary to the product; it is the product.” This arrival creates the conditions where Employees are more likely to treat customers in ways that distinguish the firm from others. There are numerous accounts of passengers who have received exceptional treatment from Southwest employees.
The examine that needs to be answered is how Southwest’s buyer service is distinct and why? Is it common for customers of other airlines to rave about their special service? The retort is that it is not. While Southwest does not have a monopoly on habitancy who are kind and who are willing to go above and beyond to satisfy a customer, such behavior is nurtured at Southwest to a much greater extent.
It can then be concluded that the buyer service that is potential to Southwest is a part of its culture. This culture is supported through Worker encouragement to do the extra to satisfy the customer. This arrival inspires habitancy who would ordinarily only on opening go out of their way to help someone, to become consistent performers that offer exceptional service all the time. Southwest employees are what differentiate its buyer service from the other airlines.
4. Technology
Southwest utilizes technology in many ways to fulfill its firm objectives and vocalize its sufficient operations. according to its Ceo, technology equals productivity. Launched in 1996, ticketless voyage was first introduced by Southwest. On May 1st 2000, Southwest Airlines introduces "Swabiz," a portal that assists firm voyage managers in booking and tracking trips made through its web site [http://www.southwest.com]. There are many new technology initiatives being undertaken currently and some are in the pipeline.
Bar codes in Boarding Passes
Southwest Airlines has invested million During the past three years to standardize corporate and terminal operations on about 10,000 Dell OptiPlex desktop and Latitude notebook computers according to its firm executives. Southwest wanted to replace its well known, brightly colored plastic boarding passes with an electronic theory with bar-code paper boarding passes. So it installed about 350 touch screen label readers powered by Dell OptiPlex desktops. The bar code gives Southwest more data to automatically reconcile the estimate of boarding passes with the estimate of passengers that actually board the plane.
Although the technology will help Southwest Airlines remain sufficient by consolidating passenger data for the company's 3,000 daily flights, there were concerns it could lengthen the time to get travelers on board. Any way it was found that scanning each bar code on the boarding passes didn't growth or shorten boarding schedules, but it did take minutes from executive processes, such as seeing up buyer records. The new paper bar code theory is giving Southwest label agents the quality to match a buyer report within having to scroll through and log into multiple software screens. The process is much more automated. Once the bar code on the boarding pass is scanned at the terminal gate it checks off the man from the passenger list in real time.
The old process was by hand that complicated seeing the information, scrolling through several software screens from reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The firm is in the process of replacing buyer service back-office equipment at airports including at its 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 imaginable to rollout next year as the firm transitions from green screens to Window-based user interface. Similar to Wal-Mart shop Inc., Southwest Airlines believes in developing in-house the software that runs its operations. The firm uses very small off-the-shelf software. There are between 75 and 100 projects in the works each year supported by roughly 900 It employees.
Rfid
Radio frequency identification technology, a convenient alternative to bar-coding for luggage identification, is also on Southwest's radar. It plans to test Rfid technology sometime in 2006. Even though, Southwest is playing a small catch-up with other airlines such as Air Tran, Alaska and Champion Airlines, in many cases they are able leapfrog to more sophisticated applications actually having waited longer.
Challenges:
Southwest has emerged very successful, despite the most troubled times in the airline market. However, it faces new challenges in the face of addition competition from other low fare airlines such as JetBlue, Ata airlines, America West.
Reserved Seating
Due to addition security guidelines since September 2001, Southwest would need to put in order for assigned (reserved) seating to track its in-flight passengers. This convert will involve large technology investments and may impact its gate operations negatively since the current way of unassigned seating has helped in quick gate turnarounds.
Passenger Demand
The keep-it-simple philosophy has served Southwest well. But as its own firm grows and grows more complex, with plans to purchase dozens of new aircraft and an imaginable upsurge in passenger traffic to about 80 million boarding’s a year, the simplicity strategy that has been reflected in the airline's It philosophy is evolving. The Cio Tom Nealon says that "It's time to adapt our firm processes for efficiency. As our airline scales for us to furnish the same kind of high-touch buyer service, we have to automate a lot of things we've been able to do without technology previously. The challenge is doing that without conceding the buyer touch." Southwest is also aggressively pursuing buyer association administration (Crm) techniques and has applications to get understanding into customer’s wants and dislikes. according to an interview with its Ceo Gary Keller, Southwest has its focus on enhancing in two areas - customer’s airport experience and in-flight experience.
In-Flight Entertainment
In an comprehensive exertion to enhance customer’s in-flight experience, in-flight entertainment is something that Southwest is currently evaluating and which JetBlue has been very flourishing at already because of its introduction in its 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 its service is still very short haul. Southwest needs to be mindful of the fact that a clear arrival that has been flourishing for its competitor may not be necessarily work to its advantage.
Summary:
Southwest has long been regarded as a benchmark in its manufactures for operational excellence. Southwest Airlines is a fine example of a firm that is committed to its core competencies - sufficient operations to drive its low cost structure, excellent delivery of buyer service and innovative Hr administration practices. We hope this paper provided a good understanding into Southwest operations, as part of its comprehensive strategy, to accomplish success and gain competitive advantage.
References:
1. [http://www.southwest.com] (Southwest airlines legal web site)
2. “Southwest keeps it simple” - Air vehicle World, April 2005, Pg 36
3. “Around the World on (or So): How High Can discount Airlines Fly?“ Strategy administration - 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 eye of manufactures Practices” – Kellogg School of administration investigate Paper, Spring 2004
8. Winning Behavior: What the Smartest, Most flourishing fellowships 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 compact Negotiations in the Airline Industry, Monthly Labor Review, July 2003, page 24
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