Southwest Airlines Operations – A Strategic Perspective
- February 22, 2017
- Posted by: marlenedubois
- Category: CPR Training
Southwest Airlines is usually the largest airline measured by number of passengers carried each year within the United States. that will is usually also known as a ‘discount airline’ compared with its large rivals within the industry. Rollin King as well as Herb Kelleher founded Southwest Airlines on June 18, 1971. Its first flights were via Love Field in Dallas to Houston as well as San Antonio, short hops with no-frills service as well as 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, as well as make darn sure they have a not bad time doing that will, people will fly your airline.” This kind of 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) as well as which has a total operating revenue of $6.5 billion. Southwest is usually traded publicly under the symbol “LUV” on NYSE.
* The first major airline to fly an individual type of aircraft (Boeing 737s)
* The first major airline to offer ticketless travel system wide including a frequent flier program based on number of trips as well as not number of miles flown.
* The first airline to offer a profit-sharing program to its Employees (instituted in 1973).
* The first major airline to develop a Web site as well as offer online booking. In 2001, about 40 percent ($2.1 billion) of its passenger revenue was generated through online bookings at [http://www.southwest.com]. Southwest’s cost per booking via the Internet is usually about $1, compared to a cost per booking through travel agents of $6 to $8.
Key competitive advantages:
* Low Operational costs / High Operational Efficiency
* Award winning customer service
* Human Resource practices / Work culture
Operations Analysis – Competitive Dimensions:
Southwest clearly features a distinct advantage compared to different airlines within the industry by executing an effective as well as efficient operations strategy that will forms an important pillar of its overall corporate strategy. Given below are some competitive dimensions that will will be studied in This kind of paper.
1. Operational Costs as well as Efficiency
2. Customer Service
3. Employee/Labor Relations
1. Operational Costs as well as Efficiency
After all, the airline industry overall is usually in shambles. although, how does Southwest Airlines stay profitable? Southwest Airlines has the lowest costs as well as 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 different ways that will Southwest is usually able to keep their operational costs low is usually – flying point-to-point routes, choosing secondary (smaller) airports, carrying consistent aircraft, maintaining high aircraft utilization, encouraging e-ticketing etc.
The labor costs for Southwest typically accounts for about 37% of its operating costs. Perhaps the most critical element of the successful low-fare airline business product is usually achieving significantly higher labor productivity. According to a recent HBS Case Study, southwest airlines is usually the “most heavily unionized” US airline (about 81% of its employees belong to an union) as well as its salary rates are considered to be at or above average compared to the US airline industry. The low-fare carrier labor advantage is usually in much more flexible work rules that will allow cross-utilization of virtually all employees (except where disallowed by licensing as well as safety standards). Such cross-utilization as well as a long-standing culture of cooperation among 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% below that will of United as well as American, as well as 58% less than US Airways.
Carriers like Southwest have a tremendous cost advantage over network airlines simply because their workforce generates more output per employee. In a study in 2001, the productivity of Southwest employees was over 45% higher than at American as well as United, despite the substantially longer flight lengths as well as larger average aircraft size of these network carriers. Therefore by its relentless pursuit for lowest labor costs, Southwest is usually able to positively impact its bottom line revenues.
Fuel costs is usually the second-largest expense for airlines after labor as well as accounts for about 18 percent of the carrier’s operating costs. Airlines that will want to prevent huge swings in operating expenses as well as bottom line profitability choose to hedge fuel prices. If airlines can control the cost of fuel, they can more accurately estimate budgets as well as forecast earnings. With growing competition as well as air travel becoming a commodity business, being competitive on cost was key to any airline’s survival as well as success. that will became hard to pass higher fuel costs on to passengers by raising ticket prices due to the highly 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 as well as has the largest hedging position among different carriers. within the second quarter of 2005, Southwest’s unit costs fell by 3.5% despite a 25% increase in jet fuel costs. During Fiscal year 2003, Southwest had much lower fuel expense (0.012 per ASM) compared to the different 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. within the second quarter of 2005 alone, Southwest achieved fuel savings of $196 million. The state of the industry also suggests that will airlines that will are hedged have a competitive advantage over the non-hedging airlines. Southwest announced in 2003 that will that will could add performance-enhancing Blended Winglets to its current as well as future fleet of Boeing 737-700’s. The visually distinctive Winglets will improve performance by extending the airplane’s range, saving fuel, lowering engine maintenance costs, as well as reducing takeoff noise.
Southwest operates its flight point-to-point service to maximize its operational efficiency as well as stay cost-effective. Most of its flights are short hauls averaging about 590 miles. that will uses the strategy to keep its flights within the air more often as well as therefore achieve better capacity utilization.
Southwest flies to secondary/smaller airports in an effort to reduce travel delays as well as therefore provide excellent service to its customers. that will has led the industry in on-time performance. Southwest has also been able to trim down its airport operations costs relatively better than its rival airlines.
At the heart of Southwest’s success is usually its single aircraft strategy: Its fleet consists exclusively of Boeing 737 jets. Having common fleet significantly simplifies scheduling, operations as well as flight maintenance. The training costs for pilots, ground crew as well as mechanics are lower, because there’s only an individual aircraft to learn. Purchasing, provisioning, as well as different operations are also vastly simplified, thereby lowering costs. Consistent aircraft also enables Southwest to utilize its pilot crew more efficiently.
The idea of ticketless travel was a major advantage to Southwest because that will could lower its distribution costs. Southwest became electronic or ticketless back within the mid-1990s, as well as today they are about 0-95% ticketless. Customers who use credit cards are eligible for online transactions, as well as today Southwest.com bookings account for about 65% of total revenue. The CEO Gary Kelly thinks that will This kind of idea could grow further as well as that will he wouldn’t be surprised if e-ticketing accounted for 75% of Southwest’s revenues by end of 2005. within the past, when there was a 10% travel agency commission paid, that will used to cost about $8 a booking. although currently, Southwest is usually paying between 50 cents as well as $1 per booking for electronic transactions that will translate to huge cost savings.
2. Employee as well as Labor Relations
Southwest has been highly regarded for its innovative management style. that will maintains a relentless focus on high-performance relationships as well as its people-management practices have been the key to its unparalleled success within the airline industry.
To Our Employees
“We are committed to provide our Employees a stable work environment with equal opportunity for learning as well as personal growth. Creativity as well as innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, as well as caring attitude within the organization that will they are likely to share externally with every Southwest Customer.”
The Southwest mission statement shows that will the company features a strong commitment to its employees. The company affords the same respect to its employees that will is usually provided to its customers. The Southwest mission statement is usually unique in that will that will recognizes the importance of its employees within the broader business strategy, which emphasizes superb customer service as well as operational efficiency. The employees reciprocate the respect, loyalty as well as trust that will Southwest demonstrates. Southwest employees are known for their loyalty, dedication, attitude as well as innovation. The employees are the distinguishing factor between Southwest as well as the rest of the airline industry.
Southwest hiring policy is usually unique not only within the airline industry, although also more broadly, as well as revolves around finding people with the right attitude that will will thrive within the Southwest culture. Extensive procedures are employed to hire for positive attitude as well as dedication. Those who do not posses those qualities are weeded out. Colleen Barrett, a non-operational officer at Southwest, states that will
“Hiring is usually critical, because you cannot institutionalize behavior. Instead, you must identify those people who already practice the behaviors you are looking for. Then you can allow Employees to be themselves as well as make decisions about Customer service based on common sense as well as their natural inclinations.” 1
Recruiting as well as interviewing at Southwest is usually a two-step process. The first step is usually a group interview, conducted by employees, where communication skills of potential candidates are evaluated. The next steps in This kind of process are one on one interview, where the candidates’ attitudes as well as orientation toward serving others are evaluated. These hiring criteria apply to all job functions since all Employees at Southwest play a customer service role. A critical part of Southwest operational strategy is usually that will every job at Southwest is usually a customer service position, whether that will directly applies to the customer or whether that will is usually internal.
The table below shows that will even though Southwest is usually the most heavily unionized airline, at approximately 80%, that will contract negotiations between the unions as well as Southwest are much shorter in duration than of the different major carriers. This kind of shows the quality of relationship that will Southwest has with its employees as well as with the unions that will represent them.
Southwest was created as a different kind of company as well as via its beginnings a unique culture was nurtured. In 1990 Colleen Barrett formed the Southwest Culture Committee. This kind of is usually unique within the industry as well as among all large companies. The committee also features a mission statement:
“This kind of group’s goal is usually to help create the Southwest spirit as well as culture where needed; to enrich that will as well as make that will better where that will already exists; as well as to liven that will up in places where that will might be “floundering”. In short, This kind of group’s goal is usually to do “whatever that will takes” to create, enhance, as well as enrich the special Southwest spirit as well as culture that will has made This kind of such a wonderful Company/Family.”
that will is usually This kind of unique approach to company values that will has created a culture that will differentiates itself via others. Southwest’s culture is usually the reason why that will is usually successful.
3. Customer Service
The Mission of Southwest Airlines
The mission of Southwest Airlines is usually dedication to the highest quality of Customer Service delivered which has a sense of warmth, friendliness, individual pride, as well as Company Spirit.
Herb Kelleher, founder of Southwest, has been quoted as saying that will “We’re within the Customer service business; we just happen to provide airline transportation”.2 Award winning customer service is usually a distinguishing characteristic of Southwest as well as that will is usually referred to internally as “Positively Outrageous Service”. that will means that will via the top to bottom everyone does whatever he or she can to satisfy the customer. This kind of includes Herb Kelleher, who has been known for helping out baggage handlers on Thanksgiving. that will is usually through emphasizing the customer as well as employee that will Southwest is usually able to differentiate itself via others within the airline industry. On a more technical level, each employee or group within Southwest has his or her own customer. This kind of means that will every employee ‘serves’ in one way or another despite not being directly involved with the passenger. The mechanic’s customer is usually the pilot as well as the caterer’s is usually the flight attendant.
that will can be said that will the “Positively Outrageous Service” that will is usually unique to Southwest “is usually not the result of a department, or a program, or a mandate via management. that will is usually not secondary to the product; that will is usually the product.” This kind of approach creates the conditions where Employees are more likely to treat customers in ways that will separate the company via others. There are numerous accounts of passengers who have received exceptional treatment via Southwest employees.
The question that will needs to be answered is usually how Southwest’s customer service is usually different as well as why? is usually that will common for customers of different airlines to rave about their special service? The answer is usually that will that will is usually not. While Southwest does not have a monopoly on people who are kind as well as who are willing to go above as well as beyond to satisfy a customer, such behavior is usually nurtured at Southwest to a much greater extent.
that will can then be concluded that will the customer service that will is usually inherent to Southwest is usually a part of its culture. This kind of culture is usually supported through employee encouragement to do the extra to satisfy the customer. This kind of approach inspires people who could ordinarily only on occasion go out of their way to help someone, to become consistent performers that will offer exceptional service all the time. Southwest employees are what differentiate its customer service via the different airlines.
Southwest utilizes technology in many ways to fulfill its business objectives as well as maintain its efficient operations. According to its CEO, technology equals productivity. Launched in 1996, ticketless travel was first introduced by Southwest. On May 1st 2000, Southwest Airlines introduces “SWABIZ,” a portal that will assists company travel managers in booking as well as tracking trips made through its web site [http://www.southwest.com]. There are many brand-new technology initiatives being undertaken currently as well as some are within the pipeline.
Bar codes in Boarding Passes
Southwest Airlines has invested $12 million during the past three years to standardize corporate as well as terminal operations on about 10,000 Dell OptiPlex desktop as well as Latitude notebook computers according to its company executives. Southwest wanted to replace its well known, brightly colored plastic boarding passes with an electronic system with bar-code paper boarding passes. So that will installed about 350 touch screen ticket readers powered by Dell OptiPlex desktops. The bar code gives Southwest more information to automatically reconcile the number of boarding passes with the number of passengers that will actually board the plane.
Although the technology will help Southwest Airlines remain efficient by consolidating passenger information for the company’s 3,000 daily flights, there were concerns that will could lengthen the time to get travelers on board. However that will was found that will scanning each bar code on the boarding passes didn’t increase or shorten boarding schedules, although that will did take minutes via administrative processes, such as looking up customer records. The brand-new paper bar code system is usually giving Southwest ticket agents the ability to match a customer record within having to scroll through as well as log into multiple software screens. The process is usually much more automated. Once the bar code on the boarding pass is usually scanned at the terminal gate that will checks off the person via the passenger list in real time.
The old process was manual that will involved finding the information, scrolling through several software screens via reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The company is usually within the process of replacing customer service back-office equipment at airports including at its headquarters in Dallas.
Software applications, such as those used by clerks to check in passengers, are being replaced. Southwest Airlines’ internally written “Airport Application Suite” is usually likely to rollout next year as the company transitions via green screens to Window-based user interface. Similar to Wal-Mart Stores Inc., Southwest Airlines believes in developing in-house the software that will runs its operations. The company uses very little off-the-shelf software. There are between 75 as well as 100 projects within the works each year supported by approximately 900 that will employees.
Radio frequency identification technology, a favorable alternative to bar-coding for luggage identification, is usually also on Southwest’s radar. that will plans to test RFID technology sometime in 2006. Even though, Southwest is usually playing a little catch-up with different airlines such as Air Tran, Alaska as well as Champion Airlines, in many cases they are able leapfrog to more sophisticated applications easily having waited longer.
Southwest has emerged very successful, despite the most troubled times within the airline market. However, that will faces brand-new challenges within the face of increasing competition via different low fare airlines such as JetBlue, ATA airlines, America West.
Due to increasing security guidelines since September 2001, Southwest could need to prepare for assigned (reserved) seating to track its in-flight passengers. This kind of change will involve large technology investments as well as may impact its gate operations negatively since the current way of unassigned seating has helped in quick gate turnarounds.
The keep-that will-simple philosophy has served Southwest well. although as its own business grows as well as grows more complex, with plans to purchase dozens of brand-new aircraft as well as an expected upsurge in passenger traffic to about 80 million boarding’s a year, the simplicity strategy that will has been reflected within the airline’s that will philosophy is usually evolving. The CIO Tom Nealon says that will “that will’s time to adapt our business processes for efficiency. As our airline scales for us to provide the same kind of high-touch customer service, we have to automate a lot of things we’ve been able to do without technology previously. The challenge is usually doing that will without conceding the customer touch.” Southwest is usually also aggressively pursuing customer relationship management (CRM) techniques as well as has applications to get insight into customer’s wants as well as dislikes. According to an interview with its CEO Gary Keller, Southwest has its focus on improving in two areas – customer’s airport experience as well as in-flight experience.
In an overall effort to improve customer’s in-flight experience, in-flight entertainment is usually something that will Southwest is usually currently evaluating as well as which JetBlue has been very successful at already because of its introduction in its long-haul flights. In comparison, Southwest has 415 airplanes to consider as well as that will represents an investment decision at a whole brand-new dimension. Additionally, Southwest has to consider how things may fit into their environment. At This kind of point, 60% of its service is usually still very short haul. Southwest needs to be mindful of the fact that will a certain approach that will has been successful for its competitor may not be necessarily work to its advantage.
Southwest has long been regarded as a benchmark in its industry for operational excellence. Southwest Airlines is usually a fine example of a company that will is usually committed to its core competencies – efficient operations to drive its low cost structure, outstanding delivery of customer service as well as innovative HR management practices. We wish This kind of paper provided a not bad insight into Southwest operations, as part of its overall strategy, to achieve success as well as gain competitive advantage.
1. [http://www.southwest.com] (Southwest airlines official web site)
2. “Southwest keeps that will simple” – Air Transport World, April 2005, Pg 36
3. “Around the entire 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 as well as 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 as well as David G. Pugh, 2003
9. Time Magazine, Oct 28th 2002 issue, Vol. 0 Issue 18, p. 45
10. “Wings Of Change”,Information Week, March 28, 2005,
11. Labor Contract Negotiations within the Airline Industry, Monthly Labor Review, July 2003, page 24