CASE STUDY BY

• Arjun Rajan Kaul (F31020)• Sumit Singh (F31031)

Overview

• Company History• Industry Profile• Competitive Advantages• Future Challenges• Recommendations

Southwest Airlines History

• Founded in Texas in 1971 as a small regional airline• Mission – “Dedication to the highest quality of Customer

Service delivered with a sense of warmth, friendliness, individual price, and Company Spirit.”

• 31 consecutive profitable years and consistently high quality ratings– Fewest customer complaints for the 13th straight year in 2003– Multiple Triple Crown winner in U.S. DOT rankings

• Today Southwest is the largest airline in the United States

Industry Profile

• Southwest competes in the domestic airline market

• Legacy carriers – United, Delta, US Airways, Continental

• Low Cost Carriers – Southwest, JetBlue, AirTran Airways, Frontier Airlines.

Industry Competitors

Alaska

Airlines

SkyW

est Airli

nes

AirTran

Jet Blue

Continental

United

US Airw

ays

American

Airlines

Southwest

Airlines

Delta A

ir Lines

0

25

50

75

100

14.920.1 20.7 21.8

37.842.8 44.2

72.2

92.595.9

January - October 2011 Passengers (in millions)

Corporate Culture

• Southwest spends the most money on employee training in the industry.– Employees are encouraged to think outside the

box and interact with customers.• High morale.• Low employee turnover and good relationship

with labor unions.

Operational Efficiency

• No frills airline with few amenities – No baggage transfers, first class seating, assigned

seats or meal service• Short haul, point-to-point strategy – Spider-web system

• Many time options, including hourly flights in some cases

Operational Efficiency

• Advantages of Spider web system• Southwest uses Boeing 737s for all of its flights– Keeps maintenance costs low and allows for quick

turnaround– 10 minute turnaround

• Planes are in the air for 12 hours per day vs. industry average of 8 hours– Major accomplishment considering that

Southwest operates short flights

Marketing Approach

• Recently named the most desired brand in America among by men and women

• Consistently offer among the lowest fares in the industry– No baggage fees, no assigned seats

• Fun image– Employees dress up for holidays– Employees are features in commercials– Themed planes

• Unique promotions

Unique Planes

Current and Future Challenges

• High Fuel Cost• Labor Challenges• Increased Competition• Mergers & Acquisitions• Market Positioning

High Fuel Costs

• Fuel costs have increased significantly• Historically Southwest has purchased a third

of its fuel on the spot market

Labor Challenges

• Increased tension between labor unions and management

• Maintaining company culture with leadership changes

Increased Competition

• More low-far, low-cost carrier competition• Legacy carriers are offering “Southwest-style

no-frills, low-far service”• JetBlue, AirTran Airways, Frontier Airlines, etc.• New competitors offered more amenities– Luxurious leather seats, DirecTV in flight, assigned

seats, fancy drinks, carb conscious meals, etc.

Mergers & Acquisition

• Southwest acquired AirTran in 2011• Must integrate AirTran’s fleet of planes,

routes, and employees into its company.

POSITIONINGMARKET

Operating Revenue

Operating Unit Revenue

Wages/benefits Percentage of Revenue

Fuel Expense % of Revenue

Areas with Potential for Improvements

• Operating Costs • Workforce Productivity • Business Expansion• Customer Satisfaction

Recommendations

Next Generation Air Transportation System(NextGen)

• NextGen Components:– Automatic dependent surveillance-broadcast– System Wide Information Management – Next Generation Data Communications– Next Generation Network Enabled Weather– NAS voice switch

Next Generation Air Transportation System(NextGen)

• NextGen Benefits:– Direct Flight Path – Efficient Landing Method• 10% reduction in fuel consumption

– Less air traffic delays• 35% reduction

Next Generation Air Transportation System(NextGen)

• To be implemented by 2025• Current airports with NextGen technology:– Houston, Las Vegas, Atlanta, Denver…

• Using NextGen In the next seven years:– $23 billion in cumulative benefits – Saves 1.4 billion gallons of jet fuel – Reduces carbon dioxide emissions by 14 million

tons

Baggage Handling Process

• Southwest’s Problem:– Mishandled bags bags per thousand passengers:

3.65 – Total Mishandled bags in 2011: over 400 K– Cost of a mishandled bag $130– Annual cost of mishandled bags: over $53 million– Dissatisfied customers– Slower turnaround time– Less productive employees

RFID Baggage Tracking Solutions(Radio-frequency identification)

• Solution: – Automated baggage handling process

• Benefits:– Automated Sorting– Dynamic Routing– Faster Loading– Happier Customers– Faster Turnaround Time

Southwest’s Fleet

• Problem:– Outdated Planes:• 194 Boeing 737s (300-500)• Average age 20.1• High fuel consumption• High maintenance cost

– 100% Consistency• 88 Boeing 717s (AirTran)

Boeing 737 MAX • Solution:– Replacing the old plans with

the new Boeing 737• Benefits:– Higher Capacity (38 more

seats)– 17-19% more fuel-efficient– Highly Reliable– 15 minutes turnaround time,

99.7% of times– Improved Amenities

Business Expansion

• Attracting New Customers– Catering to Business Travelers– Improved Frequent Flyer Program– Marketing Campaigns

• Expanding to International Markets– Caribbean, Mexico, Canada, etc.

• Expanding to New Domestic Markets

Company Culture

• Emphasizing on the importance of corporate culture• Introducing new employees to Southwest’s unique

culture• Rewarding and recognizing individual achievements

Questions?