Southwest Airlines Operations – A Strategic Overview

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Background:

Southwest Airlines is the largest airline in the United States, measured by the number of passengers transported each year. You can also use the & # 39; discount airline & # 39; & # 146; Compared to the major competitors in the industry. Rollin King and Herb Kelleher founded Southwest Airlines on June 18, 1971.
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Their first flight was from Love Field in Dallas to Houston and San Antonio, and there were short jumps with unrestricted service and a simple fare structure. The airline started with one simple strategy: & # 39; # If you bring your passengers to their destination when they want to go there at the lowest possible price, and make sure they have a good time doing it, people fly the airline.
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& # 148; This approach has been key to the success of the Southwest. The Southwest currently serves 71 million passengers (in 2004) and 60 cities (in 31 states) with a total operating income of $ 6.5 billion. Southwest, open to the public & # 147; LUV & # 148; On the NYSE.
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Truths:

* The first major airline to fly a uniform plane (Boeing 737s)

* The first major airline offering a ticketed travel system includes frequent schedules that depend on the number of flights and not on the number of miles traveled.

* The first airline offering profit sharing program to its employees (founded in 1973).
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* It is the first major airline that develops a website and provides online booking services. In 2001, approximately 40 percent of passenger revenue ($ 2.1 billion) was generated from online bookings at (http://www.southwest.com). Southwest’s cost per booking over the Internet is approximately US $ 1, compared to the cost per booking made through travel agencies between US $ 6 and US $ 8.
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Key competitive advantages:

* Low Operating Costs / High Operating Efficiency

* Award-winning customer service

* Human Resources practices / Work culture

Transaction Analysis & # 150; Competitive Dimensions:

Southwest clearly has a significant advantage over other airlines in the industry by implementing an effective and efficient operational strategy, which is an important pillar of its overall corporate strategy. Below are some of the competitive dimensions to be discussed in this study.
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1. Operational Costs and Productivity

2. Customer Service

3. Employee / Labor Relations

4. Technology

1. Operational Costs and Productivity
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After all, the airline is in general chaos. But how does Southwest Airlines stay profitable? According to President Kelleher, Southwest Airlines has the lowest cost and strongest balance sheet in its industry. The two largest operating costs for any airline & # 150; labor costs (about 40%) followed by fuel costs (about 18%). Some other ways in which the Southwest can keep operational costs low – flying end-to-end routes, selecting secondary (smaller) airports, moving consistent airplanes, maintaining high aircraft use, promoting e-ticket sales, and so on.

Labor costs

Labor costs for the Southwest account for about 37% of operating costs. Perhaps the most critical element of the successful low-tariff airline business model is to achieve significantly higher labor productivity. According to a recent HBS Case Study, southwest airlines are the most heavily unionized & # 148; US airline (approximately 81% of its employees belong to a union) and salary rates are considered to be in the middle or above compared to the US airline industry. The advantage of low-wage carrier labor is in much more flexible working rules that allow cross-use of almost all employees (except where licensing and security standards are not permitted). A long-standing culture of cooperation between such cross-use and labor groups is turning into lower unit labor costs. In the fourth quarter of 2000, the total labor per seat mile (ASM) in the Southwest was below 25% of the United States and Americans, and below 58% of US Airlines.

Carriers, such as the Southwest, have a huge cost advantage over network airlines, as only the labor produces more output per employee. In a 2001 study, productivity of Southwest workers was above 45% from the United States and the United States, despite essentially longer flight lengths and the larger average aircraft size of these network carriers. Therefore, the Southwest can positively affect its lower incomes, with its relentless search for the lowest labor cost.

Fuel Costs

Fuel costs are the second largest expense for post-labor airlines and account for about 18 percent of the carrier’s operating costs. Airlines that want to avoid large fluctuations in operating costs and ultimately profitability prefer to be protected from fuel prices. If airlines can control fuel costs, they can more accurately estimate budgets and estimate your earnings. When increased competition and air travel became a commodity business, being competitive in price was key to the airline’s survival and success. Due to the highly competitive nature of the industry, it was difficult to pass on higher ticket costs to passengers by raising ticket prices.

Southwest has successfully implemented its fuel conservation strategy to save a significant amount of fuel expenditure and has the greatest protection position among other carriers. In the second quarter of 2005, Southwest’s unit costs fell by 3.5%, despite a 25% increase in jet fuel costs. During the fiscal year 2003, the Southwest had much lower fuel consumption (0.012 per ASM) than other airlines, with the exception of JetBlue, as shown below. In 2005, 85 percent of the airline’s fuel need was maintained at $ 26 per barrel. In August 2005, world oil prices reached $ 68 per barrel. Only in the second quarter of 2005, the Southwest saved $ 196 million in fuel. The state of the industry also shows that protected airlines have a competitive advantage over unprotected airlines. In Southwest 2003, he announced that he would add performance-enhancing Blended Wings to his current and future Boeing 737-700 fleet. Visually distinctive Winglets improve performance by increasing the range of the aircraft, saving fuel, reducing engine maintenance costs and reducing take-off noise.

Point to Point Service

Southwest operates a point-to-point flight service to maximize operational efficiency and stay cost-effective. Most of its flights have an average short range of about 590 miles. It uses the strategy to keep its flights more frequently in the air and therefore provides better capacity utilization.

Secondary Airports

Southwest flies to secondary / smaller airports to reduce travel delays and therefore provides excellent service to its customers. He pioneered the industry in time. Southwest also reduced airport operating costs better than competing airlines.

Consistent aircraft

At the heart of Southwest’s success is a single aircraft strategy: its fleet consists only of Boeing 737 jets. Having a joint fleet makes programming, operations and flight maintenance considerably easier. There is only one airplane to be learned because the training costs for pilots, ground crew and mechanics are low. Purchasing, procurement and other operations are also simplified, thus reducing costs. Consistent airplanes also enable the Southwest’s pilot team to use them more efficiently.

E-Ticket

The idea of ​​traveling without tickets was a great advantage for the Southwest because it could reduce distribution costs. In the mid-1990s, the Southwest became electronic or non-ticketed, and today they remain 90-95% without ticket. Credit card customers are eligible for online transactions and Southwest.com reservations today account for approximately 65% ​​of total revenue. Gary Kelly, CEO, believes that this idea will grow even further, and he would not be surprised if e-ticket sales accounted for 75% of Southwest’s revenue by the end of 2005. In the past, when there was a 10% trip, the agency paid the commission, the reservation fee was about $ 8. Currently, however, the Southwest is paying between 50 cents and $ 1 per booking for electronic transactions, which means huge cost savings.

2. Employee and Labor Relations

Southwest has gained great importance for its innovative management style. It maintains uninterrupted focus on high-performance relationships, and human management practices have been the key to its unmatched success in the airline industry.

Statement of duty

our employees

# We are committed to providing our employees with a stable work environment that offers equal opportunities for learning and personal development. Creativity and innovation are encouraged to increase the effectiveness of Southwest Airlines. First of all, employees will be provided with the same concern, respect and care as the organization expected to share with all Southwest Customers within the organization. & # 148;

The southwest mission demonstrates a strong commitment to the company’s employees. The Company respects the employees it provides to its customers in the same way. The Southwest mission statement is unique in recognizing the importance of its employees in a broader business strategy that emphasizes superior customer service and operational efficiency. Employees respond to the respect, loyalty and trust that the Southwest has shown. Southwest employees are known for their loyalty, commitment, attitude and innovation. Employees are the distinction factor between the Southwest and the rest of the airline industry.

Hiring

Southwest recruitment policy is unique not only within the airline industry but also in a wider area and revolves around finding people with the right attitude to flourish in Southwest culture. Comprehensive procedures are applied in recruitment for positive attitude and dedication. Those who do not have these qualities are extracted. Colleen Barrett, a non-operational officer in the Southwest,

& # 39; Employment is important because you cannot institutionalize your behavior. Instead, you’ll need to identify people who already implement the behaviors you’re looking for. You can then let Employees be themselves and make decisions about customer service based on their common sense and natural disposition. & # 148; one

Recruitment and interviewing in the Southwest is a two-stage process. The first step is a group interview conducted by employees to assess the communication skills of potential candidates. The next steps in this process are one-to-one interviews where candidates’ attitudes and orientations to serve others are assessed. These recruitment criteria apply to all business functions because all Employees in the Southwest seem to play a customer service role. A critical part of Southwest’s operational strategy is that every business in the Southwest is a customer service location, whether it applies directly to the customer or whether it is internal.

The table below shows that although the Southwest is the most heavily unionized airline, at about 80%, contract negotiations between trade unions and the Southwest are much shorter than other major carriers. This demonstrates the quality of Southwest’s relationship with its employees and the trade unions that represent them.

culture

Southwest was founded as a different company and from the beginning a unique culture was nurtured. In 1990, Colleen Barrett founded the Southwest Cultural Committee. This is unique in the industry and among all the major companies. The committee also has a mission:

The purpose of this group is to help create the spirit and culture of the Southwest when necessary; enrich and make it better where it exists; and revive where it may be “flood”. In short, the aim of this group is to do “whatever it takes” to create, develop and enrich the special Southwest spirit and culture that makes such a wonderful Company / Family. & # 148;

This unique approach to company values ​​creates a culture that distinguishes itself from others. Southwest culture is the reason for its success.

3. Customer Service

Mission of Southwest Airlines

The mission of Southwest Airlines is dedication to the highest level of customer service with warmth, sincerity, individual pride and the Company Spirit.

approach

Herb Kelleher, founder of the Southwest, says, “We are in the customer service business; we only do air transportation.” 2 Award-winning customer service is a distinctive feature of the Southwest and is built-in; “Positive Ugly Service”. This means that everyone from top to bottom is doing their best to satisfy the customer. This includes Herb Kelleher, who is known to help baggage handlers on Thanksgiving. Emphasizing the customer and employee, he emphasized that Southwest can distinguish itself from the others in the airline industry. On a more technical level, each employee or group within the Southwest has its own client. This means that each employee has the & # 146; Although it does not interfere in some way or directly with the passenger. The customer of the mechanic is a pilot and the catering is a flight attendant.

Results

It can be said that the Southwest “Positive Ugly Service” is not the duty of a department, program or management. It is not secondary to the product; It is the product. & # 148; This approach creates conditions in which Employees are more likely to treat customers in ways that distinguish the company from others. There are a large number of passenger accounts that have been treated exceptionally by Southwest employees.

The question is, how different is Southwest’s customer service and why? Is it common to praise other airlines for their special services for their customers? That’s not the answer. There is no monopoly on people who are kind and willing to go above and beyond to please a customer, but such behavior is fed to a much greater extent in the Southwest.

It can then be concluded that customer service, which is unique to the Southwest, is part of the culture. This culture is supported by encouraging employees to make additional efforts to please the customer. This approach normally inspires people who only occasionally interrupt to help someone, perform consistently, always provide exceptional service. Southwest employees are what distinguishes customer service from other airlines.

4. Technology

Southwest uses technology in many ways to meet its business goals and maintain effective operations. According to the CEO, technology efficiency is equal. Launched in 1996, the ticketless travel was first introduced by Southwest. On May 1, 2000, Southwest Airlines introduces SW SWABIZ portal, a portal that helps company travel executives make reservations and follow-up trips through the website (http://www.southwest.com). There are many new technology initiatives currently under way and some are in the pipeline.

Barcodes in Boarding Passes

Southwest Airlines has invested $ 12 million in the last three years to standardize its corporate and terminal operations on approximately 10,000 Dell OptiPlex desktops and Latitude laptops, according to company executives. Southwest wanted to replace the well-known glossy plastic boarding cards with an electronic system with barcode paper boarding cards. So we installed about 350 touch screen ticket readers supported by Dell OptiPlex desktop computers. The barcode provides more information to automatically reconcile the number of boarding passes to the Southwest with the number of passengers boarding.

While technology would help Southwest Airlines combine passenger information for the company’s 3,000 flights daily, there were concerns that it could extend the time it takes to board passengers. However, it was found that scanning each barcode on boarding passes did not increase or shorten boarding schedules, but it took several minutes of administrative procedures, such as looking at customer records. The new paper barcode system allows Southwest ticket agencies to match a customer record with the obligation to scroll and log into multiple software screens. The process is much more automated. When the bar code on the boarding pass is scanned at the terminal door, it checks the person in the passenger list in real time.

The old process was from finding information, from booking to check-in, and from several boarding screens to scrolling. Barcode equipment used to scan boarding cards was deployed. The company is in the process of replacing customer service back office equipment at airports, including its headquarters in Dallas.

Software Upgrades

Software applications such as those used by officers to control passengers are being modified. Southwest Airlines & # 39; s internally written “Airport Application Suite” is expected to be launched next year with the transition from green screens to the Window-based user interface. Similar to Wal-Mart Stores Inc., Southwest Airlines believes in developing in-house software that operates its operations. The company uses very little ready software. Each year, there are 75 to 100 projects supported by approximately 900 IT employees.

RFID

Radio frequency identification technology is an alternative to barcoding for baggage recognition on Southwest’s radar. In 2006, it plans to test RFID technology. While the Southwest continues to grow small with other airlines such as Air Tran, Alaska and Champion Airlines, in many cases it can spur more sophisticated applications that are waiting longer.

Challenges:

Southwest emerged very successfully despite the most troubled times in the airline market. However, JetBlue, ATA airlines, and other low-cost airlines, such as America West, face new challenges in the face of increasing competition.

Reserved seats

Due to increased security guidelines since September 2001, they need to be prepared for designated (reserved) seating to track passengers on the Southwest’s flight. This change will involve major technology investments and will adversely affect door operations, as the existing unassigned seating style helps in fast door turns.

Passenger Request

The simple hold philosophy served well to the southwest. But as their businesses grow and grow, dozens of new aircraft purchase plans and the expectation of approaching nearly 80 million passengers in passenger traffic, the airline’s IT philosophy, the strategy of simplicity reflected. IO It’s time to adapt our business processes for efficiency, C said CIO Tom Nealon. When our airline is scaled to give us the same kind of high-touch customer service, we have to automate many things we can do. without advance technology. The challenge is to do it without accepting the customer’s touch. ”Southwest also aggressively follows customer relationship management (CRM) techniques and has applications to understand customer wishes and tastes. According to the interview with CEO Gary Keller, the Southwest focused on developing two areas – the customer’s airport experience and flight experience.

In-flight Entertainment

Overall, in-flight entertainment in an effort to improve the customer’s flight experience is something that Southwest is currently evaluating and that JetBlue is already very successful because of its introduction on long-haul flights. In contrast, the Southwest has 415 planes to consider, and this represents an investment decision in a completely new dimension. In addition, he should consider how southwestern jobs fit into their environment. At this point, 60% of the service is still very short. Southwest should be aware that a particular approach that is successful for its competitor may not necessarily be suitable for its advantage.

Summary:

Southwest has long been recognized as a benchmark in the industry for operational excellence. Southwest Airlines is a good example of a company committed to its core competencies – efficient operations, exceptional customer service delivery and innovative HR management practices to maintain its low-cost structure. We hope that this article will give a good insight into Southwest operations as part of its overall strategy to achieve its success strategy and competitive advantage.

References:

1. (http://www.southwest.com) (Southwest Airlines official website)

2. & # 147; Southwest sheds simple & # 148; – World of Air Transport, April 2005, page 36

3. Worldwide $ 48 (or so): How High Can Discount Airlines Fly? & # 147; Strategy Management – Information @ Wharton Bulletin 5 Oct 2005

4. TechWeb – (http://www.techweb.com/wire/ebiz/173601227)

5. & # 147; Southwest’s Success Strategy: Assemble! & # 148; – Oracle Magazine (September / October 2004 edition) http://www.oracle.com/technology/oramag/oracle/04-sep/o54swest.html

6. & # 147; Southwest Airlines: High Technology, Low Cost & # 148; – Eweek.com, April 2005

7. & # 147; Jet Fuel Hedging Strategies: Available Options for Airlines and an Industrial Applications Survey & # 148; & # 150; Kellogg Faculty of Management Research Report, Spring 2004

8. Winning Behavior: What Do the Most Intelligent, Most Successful Companies Do in a Different Way? Terry R. Bacon and David G. Pugh, 2003

9. Time Magazine, October 28, 2002, Volume. 160 Number 18, p. 45

10. Change Wings & # 148; Information Week, 28 March 2005,

11. Labor Contract Negotiations in the Airline Industry, Monthly Labor Review, July 2003, page 24

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