Southwest Airlines Operations – A Strategic Standpoint

Track record:

Southwest Airlines is the greatest airline measured by amount of travellers carried each and every year in the United States. It is also regarded as a ‘discount airline’ when compared with its significant rivals in the field. Rollin King and Herb Kelleher started Southwest Airlines on June 18, 1971. Its to start with flights ended up from Enjoy Area in Dallas to Houston and San Antonio, short hops with no-frills provider and a uncomplicated fare composition. The airline began with just one uncomplicated method: “If you get your travellers to their locations when they want to get there, on time, at the cheapest probable fares, and make darn sure they have a excellent time executing it, individuals will fly your airline.” This approach has been the important to Southwest’s good results. At present, Southwest serves about 60 metropolitan areas (in 31 states) with seventy one million overall travellers carried (in 2004) and with a overall functioning profits of $six.5 billion. Southwest is traded publicly less than the image “LUV” on NYSE.

Points:

*The to start with significant airline to fly a one style of aircraft (Boeing 737s)

*The to start with significant airline to present ticketless travel program vast together with a recurrent flier application based mostly on amount of outings and not amount of miles flown.

*The to start with airline to present a profit-sharing application to its Personnel (instituted in 1973).

*The to start with significant airline to create a Web site and present on the web scheduling. In 2001, about forty % ($2.one billion) of its passenger profits was created by way of on the web bookings at [http://www.southwest.com]. Southwest's price tag for every scheduling by way of the Net is about $one, when compared to a price tag for every scheduling by way of travel agents of $six to $8.

Critical competitive benefits:

*Low Operational costs / High Operational Effectiveness

*Award winning consumer provider

*Human Source procedures / Get the job done culture

Operations Analysis – Competitive Dimensions:

Southwest evidently has a distinctive advantage when compared to other airlines in the field by executing an successful and productive functions method that kinds an significant pillar of its over-all corporate method. Specified down below are some competitive proportions that will be studied in this paper.

one.Operational Costs and Effectiveness

2.Purchaser Company

3.Employee/Labor Relations

four.Technology

one. Operational Costs and Effectiveness

After all, the airline field over-all is in shambles. But, how does Southwest Airlines remain financially rewarding? Southwest Airlines has the cheapest costs and strongest equilibrium sheet in its field, in accordance to its chairman Kelleher. The two major functioning costs for any airline are – labor costs (approx forty%) adopted by fuel costs (approx 18%). Some other methods that Southwest is capable to maintain their operational costs very low is - flying level-to-level routes, deciding on secondary (lesser) airports, carrying dependable aircraft, keeping superior aircraft utilization, encouraging e-ticketing etc.

Labor Costs

The labor costs for Southwest ordinarily accounts for about 37% of its functioning costs. Most likely the most vital component of the successful very low-fare airline business product is achieving substantially bigger labor productivity. In accordance to a modern HBS Circumstance Review, southwest airlines is the “most closely unionized” US airline (about 81% of its workers belong to an union) and its salary fees are deemed to be at or previously mentioned typical when compared to the US airline field. The very low-fare provider labor advantage is in much far more adaptable work principles that permit cross-utilization of nearly all workers (except exactly where disallowed by licensing and protection requirements). Such cross-utilization and a extended-standing culture of cooperation between labor groups translate into reduce unit labor costs. At Southwest in 4th quarter 2000, overall labor expenditure for every out there seat mile (ASM) was far more than twenty five% down below that of United and American, and fifty eight% fewer than US Airways.

Carriers like Southwest have a tremendous price tag advantage more than community airlines just mainly because their workforce generates far more output for every personnel. In a research in 2001, the productivity of Southwest workers was more than forty five% bigger than at American and United, despite the considerably extended flight lengths and much larger typical aircraft size of these community carriers. Therefore by its relentless pursuit for cheapest labor costs, Southwest is capable to positively impact its bottom line revenues.

Gas Costs

Gas costs is the 2nd-greatest expenditure for airlines soon after labor and accounts for about 18 % of the carrier's functioning costs. Airlines that want to avert enormous swings in functioning costs and bottom line profitability pick to hedge fuel price ranges. If airlines can regulate the price tag of fuel, they can far more precisely estimate budgets and forecast earnings. With expanding opposition and air travel turning into a commodity business, being competitive on cost was important to any airline’s survival and good results. It grew to become difficult to pass bigger fuel costs on to travellers by boosting ticket price ranges thanks to the very competitive character of the field.

Southwest has been capable to productively carry out its fuel hedging method to save on fuel costs in a large way and has the greatest hedging place between other carriers. In the 2nd quarter of 2005, Southwest’s unit costs fell by 3.5% despite a twenty five% maximize in jet fuel costs. For the duration of Fiscal year 2003, Southwest had much reduce fuel expenditure (.012 for every ASM) when compared to the other airlines with the exception of JetBlue as illustrated in exhibit one down below. In 2005, eighty five for every cent of the airline’s fuel demands has been hedged at $26 for every barrel. Entire world oil price ranges in August 2005 reached $sixty eight for every barrel. In the 2nd quarter of 2005 by itself, Southwest accomplished fuel cost savings of $196 million. The condition of the field also indicates that airlines that are hedged have a competitive advantage more than the non-hedging airlines. Southwest introduced in 2003 that it would include performance-improving Blended Winglets to its present and potential fleet of Boeing 737-seven-hundred’s. The visually distinctive Winglets will make improvements to performance by extending the plane’s selection, preserving fuel, lowering engine servicing costs, and lessening takeoff noise.

Stage-to-Stage Company

Southwest operates its flight level-to-level provider to maximize its operational effectiveness and remain price tag-successful. Most of its flights are short hauls averaging about 590 miles. It uses the method to maintain its flights in the air far more generally and hence obtain much better potential utilization.

Secondary Airports

Southwest flies to secondary/lesser airports in an hard work to lessen travel delays and hence give great provider to its buyers. It has led the field in on-time performance. Southwest has also been capable to trim down its airport functions costs rather much better than its rival airlines.

Regular aircraft

At the coronary heart of Southwest's good results is its one aircraft method: Its fleet consists completely of Boeing 737 jets. Owning frequent fleet substantially simplifies scheduling, functions and flight servicing. The training costs for pilots, floor crew and mechanics are reduce, mainly because you will find only a one aircraft to understand. Buying, provisioning, and other functions are also vastly simplified, thereby lowering costs. Regular aircraft also permits Southwest to benefit from its pilot crew far more effectively.

E-Ticketing

The strategy of ticketless travel was a significant advantage to Southwest mainly because it could reduce its distribution costs. Southwest grew to become digital or ticketless again in the mid-nineteen nineties, and today they are about 90-95% ticketless. Customers who use credit history playing cards are suitable for on the web transactions, and today Southwest.com bookings account for about sixty five% of overall profits. The CEO Gary Kelly thinks that this strategy would grow even more and that he would not be astonished if e-ticketing accounted for seventy five% of Southwest’s revenues by conclusion of 2005. In the past, when there was a ten% travel agency fee paid out, it applied to price tag about $8 a scheduling. But at present, Southwest is spending in between fifty cents and $one for every scheduling for digital transactions that translate to enormous price tag cost savings.

2. Employee and Labor Relations

Southwest has been very regarded for its impressive management fashion. It maintains a relentless concentration on superior-performance relationships and its individuals-management procedures have been the important to its unparalleled good results in the airline field.

Mission Assertion

To Our Personnel
“We are fully commited to give our Personnel a secure work ecosystem with equivalent chance for studying and particular advancement. Creativeness and innovation are encouraged for enhancing the effectiveness of Southwest Airlines. Over all, Personnel will be offered the similar worry, regard, and caring mindset in the business that they are expected to share externally with every single Southwest Purchaser.”

The Southwest mission statement reveals that the firm has a potent motivation to its workers. The firm affords the similar regard to its workers that is offered to its buyers. The Southwest mission statement is exclusive in that it acknowledges the importance of its workers in the broader business method, which emphasizes excellent consumer provider and operational effectiveness. The workers reciprocate the regard, loyalty and believe in that Southwest demonstrates. Southwest workers are regarded for their loyalty, dedication, mindset and innovation. The workers are the distinguishing element in between Southwest and the rest of the airline field.

Employing

Southwest choosing policy is exclusive not only in the airline field, but also far more broadly, and revolves around finding individuals with the correct mindset that will thrive in the Southwest culture. Considerable methods are utilized to use for positive mindset and dedication. These who do not posses those people qualities are weeded out. Colleen Barrett, a non-operational officer at Southwest, states that

“Hiring is vital, mainly because you are unable to institutionalize actions. In its place, you must recognize those people individuals who already observe the behaviors you are wanting for. Then you can permit Personnel to be them selves and make conclusions about Purchaser provider based mostly on frequent feeling and their normal inclinations.” one

Recruiting and interviewing at Southwest is a two-stage process. The to start with stage is a group job interview, executed by workers, exactly where conversation competencies of possible candidates are evaluated. The future ways in this process are just one on just one job interview, exactly where the candidates' attitudes and orientation towards serving some others are evaluated. These choosing requirements utilize to all position capabilities considering that all Personnel at Southwest play a consumer provider role. A vital component of Southwest operational method is that every single position at Southwest is a consumer provider place, irrespective of whether it immediately applies to the consumer or irrespective of whether it is inner.

The desk down below reveals that even though Southwest is the most closely unionized airline, at close to eighty%, that contract negotiations in between the unions and Southwest are much shorter in duration than of the other significant carriers. This reveals the good quality of marriage that Southwest has with its workers and with the unions that signify them.

Lifestyle

Southwest was developed as a different type of firm and from its beginnings a exclusive culture was nurtured. In 1990 Colleen Barrett shaped the Southwest Lifestyle Committee. This is exclusive in the field and between all significant corporations. The committee also has a mission statement:

“This group's objective is to help make the Southwest spirit and culture exactly where required to enrich it and make it much better exactly where it already exists and to liven it up in spots exactly where it may be "floundering". In short, this group's objective is to do "what ever it can take" to make, boost, and enrich the unique Southwest spirit and culture that has produced this these types of a fantastic Enterprise/Family members.”

It is this exclusive approach to firm values that has developed a culture that differentiates alone from some others. Southwest’s culture is the explanation why it is successful.

3. Purchaser Company

The Mission of Southwest Airlines
The mission of Southwest Airlines is dedication to the best good quality of Purchaser Company delivered with a feeling of warmth, friendliness, individual pride, and Enterprise Spirit.

Tactic

Herb Kelleher, founder of Southwest, has been quoted as indicating that "We're in the Purchaser provider business we just come about to give airline transportation".2 Award winning consumer provider is a distinguishing attribute of Southwest and it is referred to internally as “Positively Outrageous Company”. It means that from the prime to bottom everyone does what ever he or she can to fulfill the consumer. This involves Herb Kelleher, who has been regarded for assisting out baggage handlers on Thanksgiving. It is by way of emphasizing the consumer and personnel that Southwest is capable to differentiate alone from some others in the airline field. On a far more specialized stage, each and every personnel or group in Southwest has his or her individual consumer. This means that every single personnel ‘serves’ in just one way or an additional despite not being immediately included with the passenger. The mechanic’s consumer is the pilot and the caterer’s is the flight attendant.

Effects

It can be mentioned that the "Positively Outrageous Company" that is exclusive to Southwest “is not the final result of a department, or a application, or a mandate from management. It is not secondary to the item it is the item.” This approach creates the disorders exactly where Personnel are far more likely to treat buyers in methods that distinguish the firm from some others. There are numerous accounts of travellers who have acquired remarkable treatment from Southwest workers.

The concern that demands to be answered is how Southwest’s consumer provider is different and why? Is it frequent for buyers of other airlines to rave about their unique provider? The answer is that it is not. Although Southwest does not have a monopoly on individuals who are type and who are prepared to go previously mentioned and over and above to fulfill a consumer, these types of actions is nurtured at Southwest to a much increased extent.

It can then be concluded that the consumer provider that is inherent to Southwest is a component of its culture. This culture is supported by way of personnel encouragement to do the further to fulfill the consumer. This approach conjures up individuals who would ordinarily only on situation go out of their way to help a person, to become dependable performers that present remarkable provider all the time. Southwest workers are what differentiate its consumer provider from the other airlines.

four. Technology

Southwest makes use of technological innovation in lots of methods to satisfy its business goals and retain its productive functions. In accordance to its CEO, technological innovation equals productivity. Introduced in 1996, ticketless travel was to start with released by Southwest. On May perhaps 1st 2000, Southwest Airlines introduces "SWABIZ," a portal that assists firm travel managers in scheduling and tracking outings produced by way of its website site [http://www.southwest.com]. There are lots of new technological innovation initiatives being undertaken at present and some are in the pipeline.

Bar codes in Boarding Passes

Southwest Airlines has invested $twelve million during the past three yrs to standardize corporate and terminal functions on about ten,000 Dell OptiPlex desktop and Latitude notebook pcs in accordance to its firm executives. Southwest desired to exchange its properly regarded, brightly colored plastic boarding passes with an digital program with bar-code paper boarding passes. So it mounted about 350 touch display screen ticket audience driven by Dell OptiPlex desktops. The bar code offers Southwest far more details to routinely reconcile the amount of boarding passes with the amount of travellers that basically board the airplane.

Although the technological innovation will help Southwest Airlines remain productive by consolidating passenger details for the firm's 3,000 day-to-day flights, there ended up concerns it could lengthen the time to get vacationers on board. However it was found that scanning each and every bar code on the boarding passes didn't maximize or shorten boarding schedules, but it did take minutes from administrative procedures, these types of as wanting up consumer documents. The new paper bar code program is providing Southwest ticket agents the capacity to match a consumer record in obtaining to scroll by way of and log into many application screens. The process is much far more automated. When the bar code on the boarding pass is scanned at the terminal gate it checks off the individual from the passenger record in real time.

The outdated process was manual that included finding the details, scrolling by way of many application screens from reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The firm is in the process of replacing consumer provider again-business devices at airports together with at its headquarters in Dallas.

Software program Upgrades

Software program apps, these types of as those people applied by clerks to check in travellers, are being replaced. Southwest Airlines' internally penned "Airport Software Suite" is expected to rollout future year as the firm transitions from eco-friendly screens to Window-based mostly user interface. Equivalent to Wal-Mart Stores Inc., Southwest Airlines believes in creating in-residence the application that runs its functions. The firm uses pretty tiny off-the-shelf application. There are in between seventy five and 100 tasks in the is effective each and every year supported by close to 900 IT workers.

RFID

Radio frequency identification technological innovation, a favorable alternative to bar-coding for luggage identification, is also on Southwest's radar. It plans to take a look at RFID technological innovation someday in 2006. Even though, Southwest is actively playing a tiny catch-up with other airlines these types of as Air Tran, Alaska and Champion Airlines, in lots of circumstances they are capable leapfrog to far more complex apps easily obtaining waited extended.

Challenges:

Southwest has emerged pretty successful, despite the most troubled moments in the airline market. However, it faces new issues in the facial area of expanding opposition from other very low fare airlines these types of as JetBlue, ATA airlines, The united states West.

Reserved Seating

Owing to expanding security pointers considering that September 2001, Southwest would want to prepare for assigned (reserved) seating to track its in-flight travellers. This improve will require significant technological innovation investments and might impact its gate functions negatively considering that the present way of unassigned seating has aided in swift gate turnarounds.

Passenger Desire

The maintain-it-uncomplicated philosophy has served Southwest properly. But as its individual business grows and grows far more complicated, with plans to buy dozens of new aircraft and an expected upsurge in passenger website traffic to about eighty million boarding’s a year, the simplicity method that has been mirrored in the airline's IT philosophy is evolving. The CIO Tom Nealon claims that "It really is time to adapt our business procedures for effectiveness. As our airline scales for us to give the similar type of superior-touch consumer provider, we have to automate a whole lot of issues we have been capable to do with no technological innovation earlier. The problem is executing that with no conceding the consumer touch." Southwest is also aggressively pursuing consumer marriage management (CRM) procedures and has apps to get insight into consumer’s needs and dislikes. In accordance to an job interview with its CEO Gary Keller, Southwest has its concentration on enhancing in two places - consumer’s airport expertise and in-flight expertise.

In-Flight Entertainment

In an over-all hard work to make improvements to consumer’s in-flight expertise, in-flight amusement is a little something that Southwest is at present analyzing and which JetBlue has been pretty successful at already mainly because of its introduction in its extended-haul flights. In comparison, Southwest has 415 airplanes to take into consideration and that signifies an expenditure final decision at a total new dimension. On top of that, Southwest has to take into consideration how issues might in shape into their ecosystem. At this level, 60% of its provider is nevertheless pretty short haul. Southwest demands to be aware of the truth that a particular approach that has been successful for its competitor might not be automatically work to its advantage.

Summary:

Southwest has extended been regarded as a benchmark in its field for operational excellence. Southwest Airlines is a wonderful case in point of a firm that is fully commited to its core competencies - productive functions to drive its very low price tag composition, fantastic shipping and delivery of consumer provider and impressive HR management procedures. We hope this paper offered a excellent insight into Southwest functions, as component of its over-all method, to obtain good results and gain competitive advantage.

References:

one. [http://www.southwest.com] (Southwest airlines official website site)

2. “Southwest keeps it uncomplicated” - Air Transport Entire world, April 2005, Pg 36

3. “Around the Entire world on $forty eight (or So): How High Can Lower price Airlines Fly?“ Approach Administration - [email protected] Wharton Publication Oct 5, 2005

four. TechWeb - [http://www.techweb.com/wire/ebiz/173601227]

5. “Southwest's Approach for Achievements: Consolidate!” - Oracle Journal (Sept/Oct 2004 version) http://www.oracle.com/technological innovation/oramag/oracle/04-sep/o54swest.html

six. “Southwest Airlines: High Tech, Low Costs” - Eweek.com, April 2005

7. “Jet Gas Hedging Methods: Alternatives Offered for Airlines and a Study of Sector Methods” – Kellogg University of Administration Exploration Paper, Spring 2004

8. Winning Behavior: What the Smartest, Most Prosperous Companies Do In another way, Terry R. Bacon and David G. Pugh, 2003

9. Time Journal, Oct 28th 2002 difficulty, Vol. one hundred sixty Concern 18, p. forty five

ten. “Wings Of Modify”,Information 7 days, March 28, 2005,

eleven. Labor Contract Negotiations in the Airline Sector, Regular monthly Labor Evaluation, July 2003, webpage 24