Background:
Southwest Airlines is the largest airline measured by amount 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 assistance and a simple fare structure. The airline began 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, population will fly your airline.” This approach 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 trip law wide together with a frequent flier agenda based on amount of trips and not amount of miles flown.
* The first airline to offer a profit-sharing agenda to its Employees (instituted in 1973).
* The first major airline to build a Web site and offer online booking. In 2001, about 40 percent (.1 billion) of its passenger income was generated straight through online bookings at [http://www.southwest.com]. Southwest's cost per booking via the Internet is about , compared to a cost per booking straight through trip agents of to .
Key competing advantages:
* Low Operational costs / High Operational Efficiency
* Award winning buyer service
* Human resource practices / Work culture
Operations pathology – competing Dimensions:
Southwest clearly has a inescapable benefit compared to other airlines in the commerce by executing an sufficient and sufficient operations strategy that forms an important pillar of its allinclusive corporate strategy. Given below are some competing 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 commerce allinclusive is in shambles. But, how does Southwest Airlines stay profitable? Southwest Airlines has the lowest costs and strongest balance sheet in its industry, agreeing 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 aircrafts, 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 indispensable element of the thriving low-fare airline business model is achieving significantly higher labor productivity. agreeing to a recent Hbs Case Study, southwest airlines is the “most heavily unionized” Us airline (about 81% of its employees belong to an union) and its wage rates are thought about to be at or above mean 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 charge per ready seat mile (Asm) was more than 25% below that of United and American, and 58% less than Us Airways.
Carriers like Southwest have a immense 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 mean aircraft size of these network carriers. Therefore by its relentless chase for lowest labor costs, Southwest is able to truly impact its lowest line revenues.
Fuel Costs
Fuel costs is the second-largest charge for airlines after labor and accounts for about 18 percent of the carrier's operating costs. Airlines that want to forestall huge swings in operating expenses and lowest line profitability choose to hedge fuel prices. If airlines can control the cost of fuel, they can more accurately evaluation budgets and forecast earnings. With growing competition and air trip becoming a commodity business, being competing 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 competing 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. While Fiscal year 2003, Southwest had much lower fuel charge (0.012 per Asm) compared to the other airlines with the exception of JetBlue as graphic 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 commerce also suggests that airlines that are hedged have a competing benefit over the non-hedging airlines. Southwest announced in 2003 that it would add performance-enhancing Blended Winglets to its current and time to come fleet of Boeing 737-700’s. The visually distinctive Winglets will heighten doing by extending the airplane’s range, salvage fuel, lowering engine maintenance costs, and reducing takeoff noise.
Point-to-Point Service
Southwest operates its flight point-to-point assistance 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 endeavor to reduce trip delays and therefore supply excellent assistance to its customers. It has led the commerce in on-time performance. Southwest has also been able to trim down its airport operations costs relatively great than its rival airlines.
Consistent aircrafts
At the heart of Southwest's success is its singular aircraft strategy: Its fleet consists exclusively of Boeing 737 jets. Having base 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 aircrafts also enables Southwest to use its pilot crew more efficiently.
E-Ticketing
The idea of ticketless trip 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 account for about 65% of total revenue. The Ceo Gary Kelly thinks that this idea would grow supplementary 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% trip agency commission paid, it used to cost about a booking. But currently, Southwest is paying in the middle of 50 cents and per booking for electronic transactions that translate to huge cost savings.
2. Employee and Labor Relations
Southwest has been highly regarded for its innovative supervision 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 supply our Employees a garage work environment with equal opening for studying and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the assosication that they are staggering to share externally with every Southwest Customer.”
The Southwest mission statement shows that the business has a strong commitment to its employees. The business affords the same respect to its employees that is provided to its customers. The Southwest mission statement is unique in that it recognizes the point of its employees within the broader business strategy, which emphasizes superb buyer assistance 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 in the middle of Southwest and the rest of the airline industry.
Hiring
Southwest hiring course is unique not only within the airline industry, but also more broadly, and revolves colse to seeing population with the right attitude that will thrive in the Southwest culture. allinclusive procedures are employed to hire for inescapable 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 identify those population who already practice the behaviors you are seeing for. Then you can allow Employees to be themselves and make decisions about buyer assistance based on base 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 possible 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 assistance role. A indispensable part of Southwest operational strategy is that every job at Southwest is a buyer assistance 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 ageement negotiations in the middle of the unions and Southwest are much shorter in duration than of the other major carriers. This shows the potential of connection that Southwest has with its employees and with the unions that characterize them.
Culture
Southwest was created as a distinct kind of business and from its beginnings a unique culture was nurtured. In 1990 Colleen Barrett formed the Southwest Culture Committee. This is unique within the commerce 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 phenomenal Company/Family.”
It is this unique approach to business values that has created a culture that differentiates itself from others. Southwest’s culture is the presume why it is successful.
3. buyer Service
The Mission of Southwest Airlines
The mission of Southwest Airlines is dedication to the highest potential of buyer assistance delivered with a sense of warmth, friendliness, individual pride, and business Spirit.
Approach
Herb Kelleher, founder of Southwest, has been quoted as saying that "We're in the buyer assistance business; we just happen to supply airline transportation".2 Award winning buyer assistance is a distinguishing characteristic of Southwest and it is referred to internally as “Positively Outrageous Service”. It means that from the top to lowest every person does whatever 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 straight through emphasizing the buyer and Employee that Southwest is able to differentiate 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 every Employee ‘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 consequent of a department, or a program, or a mandate from management. It is not secondary to the product; it is the product.” This approach creates the conditions where Employees are more likely to treat customers in ways that distinguish the business from others. There are numerous accounts of passengers who have received exceptional medicine from Southwest employees.
The request that needs to be answered is how Southwest’s buyer assistance is distinct and why? Is it base 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 population 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 terminated that the buyer assistance that is possible to Southwest is a part of its culture. This culture is supported straight through Employee encouragement to do the extra to satisfy the customer. This approach inspires population who would generally only on opening go out of their way to help someone, to come to be consistent performers that offer exceptional assistance all the time. Southwest employees are what differentiate its buyer assistance from the other airlines.
4. Technology
Southwest utilizes technology in many ways to fulfill its business objectives and enounce its sufficient operations. agreeing to its Ceo, technology equals productivity. Launched in 1996, ticketless trip was first introduced by Southwest. On May 1st 2000, Southwest Airlines introduces "Swabiz," a portal that assists business trip managers in booking and tracking trips made straight 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 While the past three years to standardize corporate and terminal operations on about 10,000 Dell OptiPlex desktop and Latitude notebook computers agreeing to its business executives. Southwest wanted to replace its well known, brightly colored plastic boarding passes with an electronic law with bar-code paper boarding passes. So it installed about 350 touch screen ticket readers powered by Dell OptiPlex desktops. The bar code gives Southwest more information to automatically reconcile the amount of boarding passes with the amount of passengers that truly board the plane.
Although the technology will help Southwest Airlines remain sufficient by consolidating passenger information 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 menagerial processes, such as seeing up buyer records. The new paper bar code law is giving Southwest ticket agents the potential to match a buyer record within having to scroll straight through and log into manifold 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 straight through several software screens from reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The business is in the process of replacing buyer assistance back-office equipment at airports together with 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 staggering to rollout next year as the business 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 business uses very dinky off-the-shelf software. There are in the middle of 75 and 100 projects in the works each year supported by roughly 900 It employees.
Rfid
Radio frequency identification technology, a suitable 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 dinky catch-up with other airlines such as Air Tran, Alaska and Champion Airlines, in many cases they are able leapfrog to more sophisticated applications truly 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 increasing competition 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 its in-flight passengers. This turn 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 religious doctrine has served Southwest well. But as its own business grows and grows more complex, with plans to buy dozens of new aircraft and an staggering upsurge in passenger traffic to about 80 million boarding’s a year, the simplicity strategy that has been reflected in the airline's It religious doctrine is evolving. The Cio Tom Nealon says that "It's time to adapt our business processes for efficiency. As our airline scales for us to supply 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 connection supervision (Crm) techniques and has applications to get understanding into customer’s wants and dislikes. agreeing to an interview with its Ceo Gary Keller, Southwest has its focus on improving in two areas - customer’s airport feel and in-flight experience.
In-Flight Entertainment
In an allinclusive endeavor to heighten customer’s in-flight experience, in-flight entertainment is something that Southwest is currently evaluating and which JetBlue has been very thriving at already because of its introduction in its long-haul flights. In comparison, Southwest has 415 airplanes to consider and that represents an speculation decision at a whole new dimension. Additionally, Southwest has to consider how things may fit into their environment. At this point, 60% of its assistance is still very short haul. Southwest needs to be mindful of the fact that a inescapable approach that has been thriving for its competitor may not be necessarily work to its advantage.
Summary:
Southwest has long been regarded as a benchmark in its commerce for operational excellence. Southwest Airlines is a fine example of a business that is committed to its core competencies - sufficient operations to drive its low cost structure, excellent delivery of buyer assistance and innovative Hr supervision practices. We hope this paper provided a good understanding into Southwest operations, as part of its allinclusive strategy, to accomplish success and gain competing advantage.
References:
1. [http://www.southwest.com] (Southwest airlines legal web site)
2. “Southwest keeps it simple” - Air transport World, April 2005, Pg 36
3. “Around the World on (or So): How High Can allowance Airlines Fly?“ Strategy supervision - 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 ready for Airlines and a observe of commerce Practices” – Kellogg School of supervision investigate Paper, Spring 2004
8. Winning Behavior: What the Smartest, Most thriving 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 ageement Negotiations in the Airline Industry, Monthly Labor Review, July 2003, page 24
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