South West Airline

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  • To what do you attribute the success of South West Airline?

Following below are the key reasons for the Southwest's success.

Scheduling: The Company limits the plane on ground for around 10 minutes. This is key because it reduces the idle time and increases the revenue. They have achieved this by having world class processes which includes maintenances' and services and baggage handling.

Strategy and Services: Southwest always chose secondary airports where it is less congested which was key in maintaining the 10 minute turnaround time.

Southwest obtained all similar Boeing planes. The planes were compact and maintenance was easy. Also these planes needed fewer members. These factors contributed in reducing cost to a large extent.

Southwest preferred “Spider Web” system instead of widely used “Hub and Spoke system”. This resulted in maximum flexibility, reduced bottlenecks and higher satisfaction.

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The overall operation costs were kept minimum. Southwest offered no frills like meals, assigned seats and used re usable boarding cards. The tickets were printed out by the machines when other airliners were still using hand written tickets.

Southwest contracted major maintenance, data processing and legal services. This kept the overall costs down.

Southwest was always careful in its expansion in new markets. It always selected new market which matched with its business plan to serve cities which are underserved and expensive. It took time to study the market and entered into California market in 1980 and coast to coast services in 1990s. Southwest now serves around 65 million passengers in 30 states more than 2800 times a day.

Marketing and Promotion: Southwest tried to push hip image by using brightly colored planes. It also went with theme “LUV”. The in flight drinks and peanuts were called as LUV potions and LUV bites. It always tried to project liveliness into its operations.

Southwest tried many promotions during its lifespan. $10 tickets for flights after 7PM on a weekday, Sun fare cheaper ticket prices and free round trip tickets for set of travel made in a year. The Idea was to pull people who still used other transportation means into using southwest. This trick worked against its traditional rivals.

Southwest pursued aggressive advertising campaign to attract new customers. For instance, their Advertisements point out loud and clear that the company charges nothing for baggage checks and pillows. All its other competitors are changing for the same to combat raising gas prices.

Corporate Culture and Employees: Southwest is always thought of as a family friendly place with flexible work hours. Southwest was very careful hiring talents who matched overall personalities of the customers and the corporate culture. Customers were invited for company events and even for hiring process. Employee recognition practices helped in awarding deserving employees. Camaraderie and harmony in between employees were very common throughout the company. This created very high retention rate and happy employees who performed their duties flawlessly.

  • How significant is the 10 to 15 minutes turnaround time of Southwest's aircraft in terms of savings in investment and utilization of its aircraft compared to the competitors?

Southwest is an economy airline. Turnaround time is one of the key areas where the company needs to perform to keep the overall operating costs down. More time in land implies revenue loss and increased cost. Reduced turnaround time means more trips between different destinations.

Southwest achieved this kind of turnaround time by flying to secondary airports which had less congestion. Also the uniformity with the fleet made it simple for the ground staff to repair and update technical knowhow. Southwest also outsourced major maintenance to contractors. Most of these features were missing in the competitors and gave an edge to Southwest.

  • What challenges is southwest facing in the future and how should they meet those challenges?

Economy and the post 9/11 world: Economy is currently going through turbulence. High fuel costs are forcing airlines into bankruptcy. Also post 9/11 and SARS have put their shadow onto the future of airline industry. All these are bringing down consumer confidence and people are travelling less. Also the newly added security arrangements complicated the business model for which Southwest is known for. Southwest should pursue aggressive promotion to pull people towards its airline in these difficult times.

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New generation of lean and mean low cost carriers: New economy airlines like JetBlue with its new fleets, is offering more leg rooms, direct TV and leather seats for very reasonable prices. JetBlue used new technologies for online check in and seat reservation and ticket dispensing machines which made life of its travelers much easy. Basically JetBlue followed Southwest's operational techniques with a difference. Now JetBlue is a formidable competitor for Southwest. To counter this, Southwest should look into options to provide some frills for the customer without hurting too much of revenue. It has already gone with leather seats. Southwest should also think of upgrading to newer planes with backseat television. Newer fleet means less maintenance and it will also pacify the customers who got upset in recent blunder in which ATA fined Southwest for the lapses in maintenance. It needs to upgrade its IT infrastructure to enable online check in and seat assignments. All these can bring back the “COOL” factor back to Southwest.

Labor Issues: Southwest always projected itself to the employees as a “Family Friendly place”. There has always been harmonious relationship between employees and the management. But a series of intense labor negotiations has put this relationship to strain. Also the significant labor force increase deteriorated the communication between these two parties. Southwest addressed these issues by renegotiating contracts with pilots, mechanics and flight attendants. This indeed put a dent in the profits as the labor cost in 2003 represented 41% of total operating costs.

New Management: Turnover in Management is a big threat. Many of these happened after September 11th and during labor contract negotiations. This definitely poses a challenge as the old management seemed to get the trust from its employees who played a key role in company's success. On July 2004, James Parker announced that he will be stepping down. Parker guided the company through difficult times after September 11th and he did continue the policies which Kelleher initiated. The new heir Gary Kelly comes from the same cadre and might pursue the old management policies.

  • What should their business and operations strategy be for the future?

Southwest currently has a tremendous advantage due to fuel hedging. According to the reports 70% of its fuel in 2009 is hedged at $66 a barrel. By 2012 Southwest hedges will decline to cover around 20% of its fuel. This will gives some time for Southwest to shift its strategy and focus. Other airlines are already in trouble due to rising fuel prices. Following should be the key areas where Southwest can improve in the following areas.

  • Invest in new efficient planes with latest gadgets.
  • Cut down on routes which are not profitable. Look for new opportunities.
  • Aggressive advertising targeting the opponent's customer base.
  • Possibility of Outsourcing maintenance and IT infrastructure.
  • Invest in IT and its web site so that the customer will be able to cheek in and assign seats.
  • Use the plane for cargo service which generates more revenue.
  • Start selling package deals like hotel and car rental and earn commission.
  • Will Gary Kelly, the new CEO, be able to maintain the profitability of Southwest Airlines while insuring the continuation of their unique culture?

Unique culture at Southwest has never hurt Southwest. The average salary given to its employees have always been less than average salary in the industry for a long time. Even then, people on the ground have worked heartily whether it's the maintenance crew or it's the attendants. This could be attributed to the unique culture at Southwest that has managed to keep all the employees happy and dedicated to the company. Happy employees translate to happy customers. By continuing to encourage this culture at Southwest and by tailoring the existing strategies to combat the challenges posed by the rivals, Gary Kelly should be able to maintain the profitability at Southwest.

References:

  • Operations Management - Contemporary concepts and Cases, Fourth Edition, by Roger G. Schroeder
  • http://www.philly.com/philly/business/breaking/20080724_Fuel_hedging_lets_Southwest_post_another_profit.html
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