Background:
Southwest Airlines is the largest airline measured by number 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 service 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 potential fares, and make darn sure they have a good time doing it, citizen will fly your airline.” This advent 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 earnings of .5 billion. Southwest is traded publicly under the symbol “Luv” on Nyse.
Facts:
* The first major airline to fly a single type of aircraft (Boeing 737s)
* The first major airline to offer ticketless trip law wide along with a frequent flier program based on number of trips and 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 establish a Web site and offer online booking. In 2001, about 40 percent (.1 billion) of its passenger earnings was generated through online bookings at [http://www.southwest.com]. Southwest's cost per booking via the Internet is about , compared to a cost per booking through trip agents of to .
Key competing advantages:
* Low Operational costs / High Operational Efficiency
* Award winning customer service
* Human reserved supply practices / Work culture
Operations determination – competing Dimensions:
Southwest clearly has a positive advantage compared to other airlines in the commerce by executing an efficient and efficient operations strategy that forms an prominent pillar of its full, 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 full, 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, choosing 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. Possibly the most significant element of the thriving low-fare airline company model is achieving significantly higher labor productivity. agreeing to a up-to-date 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 carefully to be at or above mean compared to the Us airline industry. The low-fare carrier labor advantage is in much more flexible work rules that allow cross-utilization of virtually all employees (except where disallowed by licensing and safety 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 price per available seat mile (Asm) was more than 25% below that of United and American, and 58% less than Us Airways.
Carriers like Southwest have a great cost advantage over network airlines naturally because their workforce generates more production 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 pursuit for lowest labor costs, Southwest is able to positively impact its lowest line revenues.
Fuel Costs
Fuel costs is the second-largest price for airlines after labor and accounts for about 18 percent of the carrier's operating costs. Airlines that want to prevent huge swings in operating expenses and lowest line profitability choose to hedge fuel prices. If airlines can operate the cost of fuel, they can more accurately assessment 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 marker prices due to the extremely 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 price (0.012 per Asm) compared to the other 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 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 advantage 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 improve doing by extending the airplane’s range, rescue fuel, lowering machine maintenance costs, and reducing takeoff noise.
Point-to-Point Service
Southwest operates its flight point-to-point service 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 achieve good capacity utilization.
Secondary Airports
Southwest flies to secondary/smaller airports in an endeavor to cut trip delays and therefore furnish perfect service 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 good than its rival airlines.
Consistent aircrafts
At the heart of Southwest's success is its single aircraft strategy: Its fleet consists exclusively of Boeing 737 jets. Having common fleet significantly simplifies scheduling, operations and flight maintenance. The training costs for pilots, ground crew and mechanics are lower, because there's only a single aircraft to learn. Purchasing, provisioning, and other operations are also vastly simplified, thereby lowering costs. Consistent aircrafts also enables Southwest to utilize its pilot crew more efficiently.
E-Ticketing
The idea of ticketless trip was a major advantage 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 reputation cards are eligible for online transactions, and today Southwest.com bookings catalogue 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 branch 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 extremely 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 furnish our Employees a carport work environment with equal chance for learning 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 society that they are anticipated to share externally with every Southwest Customer.”
The Southwest mission statement shows that the company has a strong commitment to its employees. The company affords the same respect to its employees that is provided to its customers. The Southwest mission statement is unique in that it recognizes the importance of its employees within the broader company strategy, which emphasizes superb customer service 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 around looking citizen with the right attitude that will thrive in the Southwest culture. full, procedures are employed to hire for positive 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 recognize those citizen who already custom the behaviors you are looking for. Then you can allow Employees to be themselves and make decisions about customer service based on common 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 transportation skills of potential 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 customer service role. A significant part of Southwest operational strategy is that every job at Southwest is a customer service position, whether it directly applies to the customer or whether it is internal.
The table below shows that even though Southwest is the most heavily unionized airline, at practically 80%, that contract negotiations in the middle of the unions and Southwest are much shorter in period than of the other major carriers. This shows the ability of association that Southwest has with its employees and with the unions that recite them.
Culture
Southwest was created as a dissimilar kind of company 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 good 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 astounding Company/Family.”
It is this unique advent to company values that has created a culture that differentiates itself from others. Southwest’s culture is the presume why it is successful.
3. customer Service
The Mission of Southwest Airlines
The mission of Southwest Airlines is dedication to the highest ability of customer service delivered with a sense of warmth, friendliness, private pride, and company Spirit.
Approach
Herb Kelleher, founder of Southwest, has been quoted as saying that "We're in the customer service business; we just happen to furnish airline transportation".2 Award winning customer service is a distinguishing characteristic of Southwest and it is referred to internally as “Positively Outrageous Service”. It means that from the top to lowest everyone does anyone 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 through emphasizing the customer 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 complex with the passenger. The mechanic’s customer 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 advent creates the conditions where Employees are more likely to treat customers in ways that distinguish the company from others. There are numerous accounts of passengers who have received exceptional medicine from Southwest employees.
The examine that needs to be answered is how Southwest’s customer service is dissimilar and why? Is it common for customers of other airlines to rave about their special service? The talk is that it is not. While Southwest does not have a monopoly on citizen 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 customer service that is potential to Southwest is a part of its culture. This culture is supported through Employee encouragement to do the extra to satisfy the customer. This advent inspires citizen who would commonly only on chance go out of their way to help someone, to become consistent performers that offer exceptional service all the time. Southwest employees are what differentiate its customer service from the other airlines.
4. Technology
Southwest utilizes technology in many ways to fulfill its company objectives and allege its efficient 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 company trip managers in booking and tracking trips made 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 company 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 marker readers powered by Dell OptiPlex desktops. The bar code gives Southwest more data to automatically reconcile the number of boarding passes with the number of passengers that positively board the plane.
Although the technology will help Southwest Airlines remain efficient by consolidating passenger data for the company's 3,000 daily flights, there were concerns it could lengthen the time to get travelers on board. However 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 executive processes, such as looking up customer records. The new paper bar code law is giving Southwest marker agents the ability to match a customer narrative within having to scroll through and log into many 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 hand-operated that complex looking the information, scrolling through any software screens from reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The company is in the process of replacing customer service back-office equipment at airports along 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 anticipated to rollout next year as the company 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 company uses very tiny off-the-shelf software. There are in the middle of 75 and 100 projects in the works each year supported by practically 900 It employees.
Rfid
Radio frequency identification technology, a favorable 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 tiny catch-up with other airlines such as Air Tran, Alaska and Champion Airlines, in many cases they are able leapfrog to more sophisticated applications positively 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 expanding competition from other low fare airlines such as JetBlue, Ata airlines, America West.
Reserved Seating
Due to expanding safety 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 doctrine has served Southwest well. But as its own company grows and grows more complex, with plans to buy dozens of new aircraft and an anticipated upsurge in passenger traffic to about 80 million boarding’s a year, the simplicity strategy that has been reflected in the airline's It doctrine is evolving. The Cio Tom Nealon says that "It's time to adapt our company processes for efficiency. As our airline scales for us to furnish 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 doing that without conceding the customer touch." Southwest is also aggressively pursuing customer association 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 sense and in-flight experience.
In-Flight Entertainment
In an full, endeavor to improve 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 think and that represents an speculation decision at a whole new dimension. Additionally, Southwest has to think how things may fit into their environment. At this point, 60% of its service is still very short haul. Southwest needs to be mindful of the fact that a positive advent 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 company that is committed to its core competencies - efficient operations to drive its low cost structure, outstanding delivery of customer service and innovative Hr supervision practices. We hope this paper provided a good understanding into Southwest operations, as part of its full, strategy, to achieve success and gain competing advantage.
References:
1. [http://www.southwest.com] (Southwest airlines lawful web site)
2. “Southwest keeps it simple” - Air converyance 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 available for Airlines and a search for of commerce Practices” – Kellogg School of supervision study Paper, Spring 2004
8. Winning Behavior: What the Smartest, Most thriving companies 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 contract Negotiations in the Airline Industry, Monthly Labor Review, July 2003, page 24
No comments:
Post a Comment