Southwest Airlines

- Venkatesh K.G

Introduction Came into existence in 1966 when Herb Kelleher and Rollin King sketched out

the plan.

Headquarter at Love Field in Dallas.

Started operations with 3 Boeing 737 aircraft serving the Texas cities of Dallas, Houston and San Antonio.

Initial competitors were Texas International and Braniff and Continental.

Present major competitors are Continental and United

They concentrate on flying to airports that are underutilized and close to metropolitan area . Eg: Love field in Dallas (Cost cutting. Expensive in busy airports.)

Company used a single aircraft – Boeing 737 which is fuel efficient. This was also done to minimise the training/skill set required for pilots.

They have the highest equipment usage in this industry – 11 hours in the air daily as compared to the industry average of 8 hours.

Southwest airlines tried to increase volumes by targeting busy routes at a lower price and because of their low fare, they increased the traveller count (8,000 people used to fly weekly from Louisville and Chicago before their inception. It has now increased to 26,000. )

Operational and financial strategy:

1) Simple fare system - Without peak/off-peak ,business/economic class.

2) Focus on core activities – Eliminating food, no seat assignment, encourage online booking facility.

3) Reduce the idle time of flight

4) Point-to-point service instead of hub and spoke model

5) Reusable boarding passes

6) Cost cutting – Not affiliated with outside flying programmes since commission has to be shared with them.

7) Customer retention – Club card, after 16 travels, passengers get 1 complementary ticket

Blur ocean strategy:

1) Fun time in air.

Other strategy:

1) Employee engagement – Individuality of employees not touched and make sure have fun activities

2) Cultural committee – 65 member committee across geographical division meet 4 times a year to ensure preserve and

enhance the southwest spirit.

Strategy

Strategy cntd..3) HRD department renamed as People development department

considering employees as customers emphasising employee engagement and motivation .

4) Recruiting –A. Rigorous selection process. B. Engagement of employees in selection process to check if the

gets along with the organization culture.C. Engagement of customers for cabin crew recruitment. D. Innovativeness of candidates assessed by asking them to draw

using crayons.E. Attitude precedes skill/experience. The later can be developed.

5) Training –A. Customer centric trainingB. New hires are exposed to the history, principles, values, mission

and culture of the company C. Emphasis on teamwork and teambuilding in all training (Not

encouraging external training so that people get to interact with all team members.)

D. Climb program – 2.5 days outbound training without mobile phones or other connections so that employee tend to interact with one another better.

Southwest spirit

Dedication , fun and belongingness by encouraging employee referral and family members at work.

Transparency / Trust is preserved by constantly sharing information with employees.

Family spirit: $ 500,000 voluntarily raised by employees as catastrophic funds to help other Southwest airlines employee at the time of trouble.

Organization citizenship: $130,000 voluntarily raised by employees to help Southwest airlines at the time of oil crisis.

People working their don’t think of Southwest airlines as a business. They think it as a crusade.

Strategy cntd..

Competitive advantage

Remarkable productivity of employees – Very low turn around period. (15 minutes. United and Continental have turnaround period of 35 minutes.)

Fun in air

Cost cutting by not focusing on non-core activities.

Low salary for pilots because they use only Boeing- 737 and not much training is required.

Efficient cost structure that they can achieve break even point at smaller volumes.

Use of less congested airports helping lesser fuel wastage for landing and take-off.

What does it take to make money in this business/industry? Airlines industry is in mature state. So not much product/ service differentiation is possible. So efficient cost model is sustainable. Since the competition is very high in this industry, we will have to follow multiple strategies which makes it difficult for competitors to imitate. Ultimately employees bring revenue for the organization. So proper employee engagement and motivation is required to enhance their productivity.

Why has Southwest been so successful this long? Cost cutting Blue ocean strategy – Created their own segment in the market by targeting short distance travel segment at a cheaper rate and eliminating differentiated pricing Service differentiation – Fun activity in air Superior employee engagement and motivation to have high employee productivity. Followed multiple strategies like fun in air, superior cost cutting , on time service, good brand image built over period which is difficult for competitors to imitate everything at a stretch.

Questions

What is the source of its competitive advantage? Is it sustainable?

Explained

What is Southwest's strategy?

Explained.

What questions should Ann be raising in the meeting?

How long will the competitive advantage of Southwest airlines sustain ?

How long will Southwest airlines will remain unimitated?

Southwest airlines is having its service across different geographical culture. How to maintain the underlying culture of the organization?

Questions cntd..

Thank You