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Low-cost carrier is so-called no-frills airline or budget airline is an airline that adopts the low cost strategies in all respects of business, such as the opening of airlines, choice of secondary airport, ways of selling tickets, and on-board service. For instance, single type of airplane, simple fare scheme, direct sales of tickets, unreserved seating, without many traditional passenger services, use secondary airport, short flights, fast turnaround times, simplified routes with point-to-point transit, low labor cost with multiple roles and etc. Such a strategy will cut down the price to a lower level and then the cost they have saved will benefit the passenger, and it will help to achieve the win-win aspect. Low-cost carrier had changed the traditional idea of air travel, is a high level of consumption, into a speedy and economic air travel. The concept originated in the United States, follow by Europe and subsequently to Asia.
The Implementation of the above plans of action cannot be executed by the other low cost airlines. Every airline tries to be unique in itself with methods of difference varying from allotted seats to operation of more than one type of aircraft. Being even after implementing the best of the strategies the operation costs of the airlines is significantly high while in contrast the airline offering cheap fares to attract passengers does not favour the airline industry a lot. These are the typical scenarios any low cost airline carrier is facing all over the globe and with increasing competitors the situation is jus taking a downhill slope.
Most, thriving low-cost carriers strive to offer a modicum of supplementary benefits ranging from flying the passengers on the stipulated time and offering the guests with extra luggage space and/or more legroom. The classic example of offering a great value low fare in its business class section can be demonstrated by AirTran, whereas live in-flight television can be found in Frontier and JetBlue airlines. The advantageous position of US Airways can be credited to its widespread route network together with its array of international destinations.
The trend of the low-cost carrier airlines was actually initiated by Pacific south west on May the Sixth, 1949 in the United States of America. With actual operation of its fleet of airlines beginning in 1971, South west airlines continued to add profits in its accounts books from 1973 onwards. With The Airline Deregulation Act of 1978, it was hardly a matter of time that the model saw itself being implemented in various parts of the world.In the country of Ireland it was RyanAir which really extracted the full capabilities of the model and started making huge profits since its inception in 1991 followed by easyJet which setup its counters in 1995.The development of the ‘Low-cost' airlines was just about to explode in Asia and the Oceania with major airline giants such as AirAsia from Malaysia and Virgin blue from the Australia making the most of the new models in their respective routes. The low-cost carrier model is appropriate internationally, while deregulated markets are most apt for its swift reach. In 2006, fresh low-cost carriers were born in the middle east, Mexico and also in the sub-continent of India.
Customers consider the price of the ticket they are paying as one of the most important factors when selecting an airline and, this is the one area where the conventional ‘full service' airways are not able to compete with the low-cost carrier airlines. To be fair on the conventional airlines part, the huge structure cost of their operations hamper them from competing with the low cost airlines on a price point of view. From 2001 to 2003, when the aviation business was shattered by terrorism, war and SARS, the bulk majority of conventional airlines faced heavy losses while low-cost carriers usually held on to the profit
For holiday purposes, budget airlines also contend with seat-only charter airplanes. However, the unavailability of chartered planes (mainly depending upon the length of stay) marks them as one of the least favourites with the tourists.
As the competition among the budget carriers has increased in the last couple of years the level of competitive stiffness among the various carriers have also proportionately increased. They not only have to compete among themselves but also have to compete with the other traditional carriers. The American Airline industry, to cope with such conditions, has implemented variations to the model being used in practice. Taking the case of Frontier Airlines and JetBlue Airways which promote satellite television in their airlines The most cheap and economical ticket and the no-frills service has been the order of the day in the airlines industry in Europe.
The domestic deregulation of the airline industry prompted a number of upcoming airlines to break into the aviation sector ,but the period which followed it was one which lead to a majority of them being seized or acquired. It was this time where the large full-fledged domestic airlines ruled and displayed domination in the airline sector. But it was not until southwest Airlines entered and revamped the whole scenario of the sector. Following this was a period when the merging and consolidations of the airlines started on a huge scale, which led to the creation of a geographically broad hub and spoke network of systems. Even the entry of the new airlines failed to deteriorate the consolidation processes. This finally gave way to a period where no new airlines was ready to initiate their firm and this in turn made the critics of the airline industry to wonder that the three major network carriers were having such a huge stronghold that the domestic competition looked to be threatened. Then there were Southwest airlines which was the only airline which stood any chance in challenging the large networked carriers.
Even after 1992 Southwest Airlines was the lone low cost carrier after having its grips on 21% of the domestic airline traffic. This was considered as a fairly substantial growth for the airlines from13.7% in just a period of four years. The winning combination of its competitive spirit, its low operating cost and achieving a high margin of services in the zones it operated helped the company grow leaps and bounds.
After making its presence felt and making a name fir itself as one of the competitive forces to reckon with, it also provided the ground work for putting up against the major network carriers. While a variety of new low cost airlines operate on different business plans, the more successful airlines in the world follow the low operating cost principle. Post 1993 a number of low cost airlines came into the business and expanded quickly in terms of size and number.
1994 was the period when the low cost carriers along with southwest were competing for the passenger market of 31.5%.This figure gradually rose to 38.6%in a gap of few months and this trend since then has exhibited no signs of receding.
Potential resource strengths and competitive capabilities
Potential resource weaknesses and competitive deficiencies
Corporate Culture - LUV and FUN
Highest employee compensation levels in the industry accounting to high overheads.
Low Cost Operation
Lean Staff Operation
Efficient Utilization of Assets
Customer service being secondary option
Maximize Human Resource
Highly Unioned Employee
Single Aircraft Type - Boeing 737s
Risk of Single Aircraft Supplier
Simple Fare Structure
Not able to get the consumer for a round trip thereby losing the second trip to a competitor
know-how or competencies
Flying only one type of plane (Boeing 737)
High capacity usage
Does not accommodate for severely handicapped
Potential market opportunities
Potential market threats
Airline's fuel hedges
Natural disaster such as Hurricanes
Drop in competitive capacity
Legacy carriers consolidation (merger)
Rapid capacity grow
Strong brand and loyal customer
Stealing traffic from other LCC (JetBlue, AirTran)
demand for Boeing narrow bodies in Asia and Europe is strong, making it difficult to secure delivery positions before 2010
The amplified annual costs associated with Airline security measures.
Prolonged internet adverts
Ø Potential resource strengths and competitive capabilities
Corporate Culture - Love and Fun
People like to work in an enjoyable environment. If the work environment is very seriously and strictly business, they might burn out. Southwest promote love and fun at work. For further promoting love and fun corporate culture, Southwest stock listed on the New York Stock Exchange as "LUV" (Southwest 1997).
At Southwest Airlines, Customers and Employees are their top priority. Herb Kelleher of Southwest Airlines says, "Our paychecks say ‘from our customers' because we want our people to remember that it's not some addition in an office that produces the check; it's our customers." (Southwest 2006)
Southwest spirit to customers was the key, as one Southwest manager put it, “Our fares can be matched; our airplanes and routes can be copied. But we pride ourselves on our customer service.” (Sunoo 1995)
Southwest has initiated “The Nuts about Southwest” blog with the goal to give readers the opportunity to look inside Southwest Airlines and to interact with Southwest. The bloggers from cross-section of the company build a personal love and fun relationship with readers. (http://www.blogsouthwest.com)
Low Cost Operation
No extra on-board service
In order to archive low cost and fast turnaround time, on-board catering, entertainment, reserved seat, more stewards and air hostess, and other complimentary services are eliminated, and replaced by optional paid-for on-board food, drink, and entertainment. Moreover, they will sell duty-exempt goods in the flight to increase income also.
Single Passenger Class
Because of low cost strategies, Southwest will not set business class, but single economy class to have more travelers. Besides, they narrow the seat space to contain more seating use fully the airplane cabin.
Efficient Utilization of Assets
Quick Turnaround time
Short flights and fast turnaround times to allow maximum utilization of planes. This is to make sure the aircraft utilized constantly, which in turn maximizes revenues.
Southwest Airlines is using less congested smaller airports or the ends of major airports to stay away from air traffic setbacks and taking benefits of lesser landing and parking fees. Shuttle buses are used to send passengers to their destinations.
Time is money. Southwest Airlines will not offer service for travelers to reserve the seat because it will reduce the boarding time to check the numbers and the time that ground crews have to deal with the boarding procedure. There is no seat allocation, you just sit where you like. Moreover, they use plastic and recyclable boarding pass to save the cost. All the purpose is to simplify the procedure to turnaround fast, so there rarely to see lots of customers wait in line in front of the counters of Southwest.
It is also in order to turn a plane as soon as possible. It can save about 20 minutes than the mainstream airlines because the longer the waiting time at a gate, the more it costs an airline. More daily operations at a gate, fewer gates are needed and infrastructure costs are reduced. The airport agencies will try to cooperate with them to provide good service.
Maximize Human Resource
The employees are working in multiple roles in order to limit personnel costs. Every scheduled flight only has three flight attendants after the airplane lands, two of the flight attendants have to clean the cabin and one work as gate agents to check or collect the flight tickets for the passengers of next flight. The aircraft commanders have to clean the cabin if that is necessary. Thus they don't hire cleaners and extra workers. Flight attendants also sell meals, drinks, and duty-exempt goods after the aircraft is taking off. Besides that, as the Southwest Airlines only three persons to take care of the flight tickets but the average of the mainstream airlines are 50 to 60 persons.
Moreover, Southwest Airlines pays pilots and flight attendants per trip, shifting what could be a fixed cost to a variable one, he says. JetBlue has taken this a step further by employing reservations agents who work from home. They are busy during peak times and receive extra compensation. In downtime periods, they are off duty and not paid. "This allows two things: you are not paying people when they are not needed and two, it allows people flexibility and choice."
Southwest Airlines make policy choices that give people incentives to reduce cost at every opportunity.
Single Aircraft Type
To keep costs of equipment down, Southwest Airlines is using a single type of airplane, Boeing 737. Instead of different types of airplanes thus employees, spares, equipment could be replaced each other to reduce staff training costs tremendously. This minimizes the cost of maintaining different aircrafts, and brings economies of scale when buying parts for airplane repair in large number.
The reason of Boeing 737 is preferred due to its low operating cost and fuel consumption. Southwest can save the cost of consuming energy of changing flight and can take the mass customers to many different destinations within 3 hours. These aircrafts are smaller than usual, thus it can lands and takes off in the secondary airports, does not need to land and take off in the primary airports because the airport landing fees at major centers remain very high.
"Southwest Airlines operates some 360 aircraft," said Williams. "It handles its own line maintenance and outsources its heavy maintenance, yet it still has lower maintenance costs than any of Europe's airlines."
In order to decrease distribution costs, Southwest Airlines has their ways to save the costs, evading costs and commissions given to travel agents and corporate booking systems.
Southwest Airlines emphasize on direct sales of tickets to customers bypassing travel agents without a wholesaler or a ticket agent, especially over the Internet. This saved Southwest Airlines 5% to 10% of each fare, a savings no other airline enjoyed. People can purchase the ticket by calling or going to the airline, or going on the exclusive website and paying the fare by credit card.
No Payable Computer Reservation System
There is a usual way to book the seat by mainstream airlines computer reservation systems (CRS), but its cost is high which paid a fee for each reservation, Southwest Airlines is keeping off the channel.
Own Booking Request Reservation System
Southwest Airlines being the first airline customer of the Sabre Basic Booking Request reservation system, which allowed travel agents to accommodate the reservation needs of our Customers directly.
DING! Discounts Directly To Customer Desktop
Since the 1990s, Southwest has been running a television ad campaign based on the phrase "Wanna get away?" The commercials present comical, embarrassing situations in which people find themselves wanting to "get away". Most ads are accompanied by the sound clip "[ding] You are now free to move about the country". The PA "ding" has become synonymous with Southwest Airlines, and inspired the name of an online ticket offer program, “DING!”. “DING!” brings deeper discounts directly to customer desktop of their choice and get live updates from the cities.
Travellers will not depend on the CRS, but a confirmable code from Southwest Airlines. Southwest Airlines own reservation system that used no tickets. Ed Stewart, a Southwest spokesperson, compared the new system to those used by car rental agencies. "You show up at the ticket counter and you have a confirmation number, and we give you a boarding pass and off you go," he said (The New York Times 1994). The operating way is to benefit both the travelers and Southwest Airlines because of the less paper work and the fast boarding time.
Simple Fare Structure
Southwest Airlines prefers to adopt simple fare structure, emphasize point-to-point transit, and adjust the fare with needs. The price structure of Southwest Airlines is lower than mainstream airlines. It is entirely different to the mainstream airlines with offering the flexible and high fare tickets. Only supply-and-demand principle dominates the price and this makes the price attractive to frequent flyers. Besides that, it also can change the price anytime to adapt to the needs of off-season and high season. Cheaper tickets by booking early where there may only be a handful of seats available on each flight at the advertised bargain fare; the earlier you book the larger the saving. The best price strategy there is in terms of marketing and cash management.
Know-How or Competencies
There will always be other air carriers that try to replicate Southwest Airlines unique business strategy. But the truth is, Southwest Airlines “invented” competition in the airline industry, therefore, we know how to handle competition from other carriers. Unlike other carriers, the Employees of Southwest Airlines know how to have FUN while turning a profit - it truly is the Employees of Southwest Airlines who set us apart from the rest. (Southwest Media, 2006)
Ø Potential resource weaknesses and competitive deficiencies
The promotional fare must be booked online because agents are hard to find. Not all customers know how to access internet.
No Business Class
For greater capacity, Southwest Airlines provides only economy cabin seat and narrow seating.
No Services for Special Needs
No services are provided for passengers who need connecting flights or wheelchairs.
In order to be low cost and turning planes fast, no meals, drinks and snacks for free, no seat reservation and free seating. Therefore, only flies to destinations within four hours.
Poor Quality Perception
Southwest Airlines use price as a market position. Customers may artificially relate low priced tickets with poor quality flight equipment and search for more expensive tickets that are associated with better and safer airline equipment.
The smaller the airplane is; the smaller legroom is. Boeing 737 have smaller legroom even compare with other low-cost carrier commonly use Airbus A320 aircraft.
High labour cost
The labour cost of Southwest Airlines is usually lower than the mainstream airlines, maybe only about forty percent of them (Anon, 1997). Due to many reasons as the staffs are younger, there are no additional costs on senior staff or those retired staff.
Ø Potential market opportunities
As the budget airlines put together a structure of service on demand they imagine and invent the better strategy. Moving a consignment from A to B is the rock bottom easiest structure within motor freight trucking.
International gateways is lacking of affordable secondary airport and the focus of the new airports on their role. The demand is there. Thus, the budget airlines choose the short haul, “point-to-point” service between midsize cities and secondary airports as its primary market focus to decrease the costs. The point to point service means if you are making a journey that involves a change of plane, you will have to check your luggage in for each leg of journey. In addition, with some airlines, if your firs leg is late you will not be transferred onto another plane if you miss the second. So it is wise if the passengers would check with each airline their policy on missed connections. It can insure against missing low cost connections with airlines.
Southwest Airlines locked in lower jet-fuel prices with its strategy of buying advance jet-fuel contracts. Southwest is 85% hedged at prices capped at $26 per barrel of oil for 2005, 65% at $32 per barrel for 2006, more than 45% at $31 per barrel for 2007 and more than 25% at $35 per barrel for 2008. To hedge so extensively, an airline needs ready cash to invest, and Southwest's biggest competitors are hanging onto cash to ride out their continuing losses. Continental is an extreme example; it has no hedges in place at all. "It's very expensive to hedge right now," says CFO Jeff Misner. "I sure wish I had some coverage out there," he adds, but given the cost, hedging doesn't make "economic sense" for Continental. CEO Larry Kellner notes, however, that the company had no 2004 hedges at this time a year ago and still wound up with a $70 million hedging gain for the year.
Availability of Secondary Airports
There are few secondary airports in major centers.
Airport Extract Low-Cost Carrier
In addition to creating lower cost facilities specifically for low-cost airlines, airports will begin to unbundled their services and the resulting charges so that airlines can select and pay only for those services that are required. This unbundled treatment of airport services can reduce costs to airlines, identify unwanted airport services that can eliminated, and reward airlines for more efficient use of airport facilities.
Low Airline Fare
Non-business passengers, leisure traffic price-conscious business passengers, are in consideration of low airline fare. The raise of low-cost carrier all offer low wages and pay less airport fees. For instance, the wages of low-cost carrier flight attends are lower then the mainstream airlines' about 60%, it could save lots of costs.
Although Southwest Airlines do not provide meals, drinks and snacks, it is actually another way to earn money. There are advertisements of various products in side the cabin and outside the fuselage which is in order to get the advertisement expenses to increase the income; the flight attends even can have commission for selling food and drinks on the airplanes. This profit will encourage the flight attends' willing of selling products.
Low Fare Service Competitiveness
After the 911 terrorism, the costs of the security and insurance of the mainstream airlines are rising sharply. This situation provides an opportunity of development for the low-cost carrier. The latest investigation showed that there are 60% Asian travelers, which include workers, students, teachers and many businessmen, are willing to take the low-cost carrier airlines to their destinations. Today, one of every seven domestic passengers is flying because of the increased competitiveness resulting from low fare service.
The low fare stimulated demand has very positive implications for the airline's industry labor force, and promotes substantial economic growth to the benefit of consumers, local communities, travel related industries, and the aerospace industry.
Ø Potential market threats
Needs For Higher Services
Southwest Airlines use price as a market position. Customers may artificially relate low priced tickets with poor quality flight equipment. Thus, in order to have passengers' confidences, Southwest could be forced to shed its minimalist cost structure by providing higher services such as tickets and baggage transfer.
On the other hand, price is not the key to everything. People, some not focusing on price-sensitive clients, still have emotions, which can be stronger than price motivation because the pricing is not the key to medium- to long-term success.
Shortage of Available Airplanes
Southwest may facing an unexpected problem; a shortage of available airplanes. And the shortage is also pushing up leasing costs at a time when airlines are already hurt by record high fuel prices. Lease rates have increased between 10% and 15% since the start of the 2004. Other low-cost carrier have selected Airbus. Over the last six months, the situation has gone from one of oversupply for these 100 to 150 seat aircraft to one where there are very few available for lease. Current rentals for new A320 aircraft range between US$250,000 and US$350,000 a month depending on the length o the lease.
AeroStrategy's Stewart, is the perceived risk of buying everything from a single supplier. This article was published in the September 2003 issue of Overhaul & Maintenance.
The fear of an oil hike remains. Southwest Airlines has been aggressively hedged against rising oil prices over the past couple of years, locking in fuel prices well under $40 per barrel. That spared Southwest Airlines the squeeze from higher energy prices that hit other carriers. Unfortunately, those hedges are ending, so Southwest faces higher e energy costs even though crude prices have fallen. (Robert Walberg, Street Patrol, Jan 2007)
What if the unpredictable factors, like 911, the war in Iraq and the SARS strike happen again? During the sensitive time, the travellers usually choose to stay in their own countries to insure their security. Can Southwest pass the difficulty with low incomes?
The model developed by the South west team has been one of the finest which has successfully been put to use since the past thirty years and has been a perfect solution to the economic situation today. From a mere airline operating three aircrafts to being a forerunner in the American airlines industry, Southwest is flying sixty million customers each year. After its tremendous success displayed d for the past 30 years, it has a chance of expansion at this difficult and crucial time for the airline industry. The success of the company cannot be attributed to just one of the organizational practice, but it is a joint collaboration of consistency, which can be moulded and used to any required situation. The other aping organizations tend to utilise a single SWA practice and that's where the difference is displayed.
Possibly the most striking feature of Southwest is the sheer continue ability of its success, year after year. The reaction to the 9-11 is expressive crisis, the competitive airlines reduced operation in their flights close to 20 percent and laid off 16 percent of their employees. Southwest displayed its own distinctive approach to handle this crisis. The Airlines displayed compassionateness by evading layoffs altogether, and by upholding its decision with respect to "taking care of our people." Southwest capitalised on these challenging times as an opportunity to expanding its presence and developing the availability of its services to their passengers. It could be attributed to the fact that Southwest as an airline believed in maintaining low debt levels and relatively high levels of cash on hand.
A recommendation towards Southwest airline is to utilize the chance to spread their business to greater regions. Further detailed recommendations can be found later. It is the period for Southwest airline to utilize its low price tickets to make its competitors out of business and control over their established area of operation. We believe, forfeiting some of the profit to bring down the ticket price of the airlines and advance hardware can help display Southwest Airline to a gigantic market that will generate more profit in future. Implementations of cost saving technology such as internet is needed to lower the operation cost to give customers better deals.
Net Income, 2001
Passengers carried, 2001
Average length of passenger haul
Trips flown, 2001
Average passenger fare
Number of Employees at period-end
Size of fleet at period-end
Table 2.1- Southwest annual report for year 2001
Return on Equity %
Sales Growth %
2000 Data Sales
Cost of Goods sold as % of sales
Gross Margin as % of sales
Operating Income as % of sales
Net Income as % of sales
Return on Equity %
Table 2.2- Five-Year Average Comparative Financial Data on Southwest Airlines and its major competitors: United, American, Delta, and Continental*
Recommendation: For the past 30-35 years, the mode of operation of Southwest Airlines has fairly been unaltered. The falling economic conditions made the competition in the low cost airlines to look up to Southwest's Business model as the ideal model to follow. This had a few advantages as the employee morale was maintained at high and also the share prices were also flying high but on the other hand Southwest was the main attention of the rival's strategy planning.
Slashing prices of their travel tickets can be seen a strategic move which could impose a significant amount of dent to the competition of Southwest airlines. These kinds of moves are typical in the corporate world where a huge company having a monopoly in the industry employ to crush their much smaller competitors. This method is advisable when rivals are near bankruptcy or are in bail-out situations. Being not able to match southwest's prices on the offering tickets, the maximum they would be able to do is reduce the amount of price difference between their tickets. Hence after making positive profit for a huge period of time, southwest can broaden the price gap by lowering its ticket prices. The relative result of this move would be losses to southwest, but this plan would push the weak rivals further into desperate situations. As this business plan influences both the companies involved, this move is considered risky and should not be implemented unless Southwest Airlines is 100% sure that their competitor is near bankruptcy. An important reason for this kind of strategic plan is to crush the weakest competition which in turn leads to freeing up of the business market where the weak company had a major area of operation.
Southwest airlines was a product when the owners had foreseen a money making opportunity in the form of providing a real faster form of transportation.
The reason for the creation of Southwest Airlines started when its founders saw an opportunity numerous trips between cities were exploited by providing a quicker form of transportation. Southwest Airlines has weathered through several crisis and has proven itself to have potential for to be a leader of its industry. The poor economic condition has placed many airline companies in debt, while Southwest Airlines was able to make a profit. With its competitors weakened, Southwest can take the initiative and expand-not foolishly, but with the same drive and precise execution the company was founded under. The genius behind Southwest Airlines' success is location; and if researched properly, this can be applied to other areas. The appeal of Southwest Airline is the cheap tickets, as they offer none of the luxuries(such as in-flight meals).
Southwest Airlines' no frills approach may not be pleasing to all, it would be good for Southwest to make a few changes in which the aesthetics would be more accommodating. Upgrading seats may be a costly venture, but it would open Southwest Airlines to a larger market.
The medium of choice for customer referral is the internet. Internet referrals have been the main source of customers (it further cut costs by charging a lesser fee to book seats through the internet than through a travel sales agent). With the saturation of discount websites, however, Southwest Airlines is losing the grip it held advertising on the internet. More websites offer competitive rates and special discounts-which if Southwest Airlines does not take immediate action can end up losing customers. Since advertising through the internet is risky, as people hate pop-ups or spam e-mails, it is our general consensus that Southwest should find ways to be listed on these price comparison websites. Before, there weren't many sites that offered price comparison and finding deals was difficult. With these sites, information is available at the fingertips of the web surfers who can make better informed choices. Southwest Airlines should ensure that their voice is heard through this medium, as it is sure to attract people in search of deals.
Southwest Airlines utilises third-Degree price unfairness to occupy the plane with travellers in the most profitable way.
Depending on the price of elasticity of demands for tickets
-Charge a higher price for business travellers who have relative inelastic demands
-Charge a lower price for vacation travellers who have relatively elastic demands
Human Resource practices of Southwest Airlines that collectively show the company's focus on its employees.
Employees Come First, Customers Come Second
Most company principle always customer come first but Southwest operative principle was that employees come first and customers come second. This reflected management's belief that delivering superior service required employees passionate about their job and knew the company concern their well-being and committed to provide job security. Southwest's thesis was “Keep employees happy, then they will keep customers happy (Thompson et al. 2004). Important of employees has been reflected in Southwest 2004 Annual Report. Southwest has changed personnel department's name to People Department in 1989 and the department head with title of vice president of people. This happens similar with Starbucks. Starbucks recognizes competitors can replicate products, but they cannot replicate people. Therefore, Starbucks seeks to connect first with employees and second with customers. There is no better spokesperson for a company, product, and brand than someone who is happy with their job and respected by their employer and peers. A happy employee will in turn, make customers happy. (Moore 2006)
Hire Attitude, Train Skill
Love and Fun is about attitude but difficult to change someone's attitude, so hire for attitude and train for skill (Freiberg K and Freiberg J 1996). According to Sunoo (1995), Southwest Chairman Herb Kelleher says the company looks first at individuals' sense of humor in assessing their potential fit with its corporate culture. The airline's reputation as a fun workplace allows it to recruit and grow without using recruiters or employment agencies. Beside that, Southwest looked for people that reading people's emotions and responding in a genuinely caring, empathetic manner. Southwest is interested in people who truly enjoyed meeting with people, motivated to help other people and enjoyed their job (Thompson et al. 2004).
University for People
The curriculum involved everyone included new recruits, employees, and leadership regardless new or experienced. The leadership courses focus on coaching and encouraging rather than supervision or enforcing rules and regulations. All employees received customer care training including pilot. Southwest emphasized on people development by offering many courses including corporate culture. Employees' orientation programs called “The Southwest Shuffle” featured many of Southwest employees rapping about the fun they had on their jobs and other exercises that corporate culture has informally communicated. (Thompson et al. 2004)
Employees are encouraged to apply for supervisory positions. Most of the supervisory positions, 80% ~ 90% were filled by internally (Thompson et al. 2004). Internal people will be appreciate and understand the needs under them and enjoy the respect of their peers and higher managers. Targeted Selection process will apply that similar to screen new recruits in order to improve the chances of matching the right people to the right jobs. This provides an opportunity for the employees grow together with Southwest and career path to enjoy and feel great to be at Southwest. All newly promoted leaders have an opportunity to develop leadership and communication skills as well as operation in every department over a six-month period to ensure that they could perform their job. Department heads, peers and subordinates provided 360-degree feedbacks. People Department analyzes the feedback and decides specific assignment for each candidate (Sunoo 1995).
Highest Employee Compensation Levels In The Industry
Southwest's pay scales were at levels close to the industry average and its benefit packages were good relative to other airlines. According to a 1997-98 survey, Southwest's pilots earned, on average, about 10 percent above the industry average.
Southwest introduced the first profit-sharing plan in the airline industry for senior employees in 1973. Most Southwest employees had the plan in 1999. By 2001, Southwest further develop the plan into 12 different stock option programs for various employee groups, a 401(k) employee savings plan that included company-matching contributions, and a profit-sharing plan that covered virtually all employees and consisted of a money purchase defined contribution plan and an employee stock purchase plan. About eight to twelve percent of base pay represented in recent years. With payroll deduction, employees participating in stock purchases at prices equal to 90 percent of the market value at each payroll period. Southwest employees owned about 10 percent of Southwest's outstanding shares. (Thompson et al. 2004)
Harmonious with Union
Southwest Airlines is one of the most highly unionized airlines in the United States, unions represent about 88% Southwest workers. However, Southwest Airlines has been more successful at reaching agreement with their labor unions in much less time. Southwest management encouraged union members and negotiators to research their pressing issues and conduct employee surveys before each contract negotiation. Southwest's contracts with the unions representing its employees were relatively free of restrictive work rules and narrow job classifications that might impede worker productivity. All of the contracts allowed any qualified employee to perform any function—thus, pilots, ticket agents, and gate personnel could help load and unload baggage when needed and flight attendants could pick up trash and make flight cabins more presentable for passengers boarding the next flight. (Thompson et al. 2004)
Today, hardly you could find a company gives you comfortable of feeling “Work Till Retirement”. Southwest's management sustains and nurtures the corporate culture with no-layoff policy, built up considerable goodwill with union over the years by avoiding layoffs (Brooker 2001).
When Southwest finally received permission to operate in 1971, it had four Boeings and less than 70 employees, barely enough to operate. When it could not meet payroll, the company had to make a choice: sell one of its planes or lay off people. It decided to do the former and asked its employees to cut turnaround time at the gate from 55 to 15 minutes. The tradition of Southwest employees, from pilots to ramp agents, pitching in to do what is necessary in order to help the company was born. (Donlon 1999)
Management by Walking Around and Open Door Policy
Southwest's manager spend at least one-third of their time out of office, walking around the facilities under their supervision, observing firsthand what was going on, listening to employees and being responsive to their concerns. This technique commonly employed by effective leaders to stay informed about how well the Strategy execution process is progressing by making regular visits to the field and talking with many different people at many different levels.
Managers are responsible to be there listening to people and available to people in person, not via a suggestion box. Southwest strongly believed that must be responsive to flight attendants or customer service agents, when they need to gain access to somebody who can give them resources and answers (Freiberg K and Freiberg J 1996).
Employees are encouraged to bring up concerns, opinions, and suggestions for reducing costs and improving efficiency. New protocols for takeoffs and landings that conserved fuel by pilot and no company logos on trash bags are good example that saving an estimated $250,000 annually. Employees suggest that buy the parts and assemble the PCs themselves for half the price of a new PC, saving the company $1 million. Southwest clerks who came up with the idea of doing away with paper tickets and shifting to e-tickets. (Thompson et al. 2004)
Colleen Barrett, Southwest's president, had articulated the company's policy some years earlier: “No Employee will ever be punished for using good judgment and good old common sense when trying to accommodate a Customer - no matter what our rules are. Let's start leaning towards our Customers again - not away from them. Let's start encouraging our line employees to be a little more flexible and to take that extra minute to accommodate special needs. Let's start encouraging our Supervisors to give our Customers the benefit of the doubt.”
Simple four layers of management between a frontline supervisor and the CEO enable bypass to get things done immediately and effectively. Southwest's empowerment, let employees comfortable in making their own decisions and undertaking their own efforts.
These practices have contributed to proficient execution of the company's business strategy, right up to the present day.
The staff and management of Southwest Airlines is a competitive advantage but not a “prime source of competitive advantage”
Southwest Airlines (SWA) and AirAsia (AA) :-
Lower Fare Price Range
Regional (SWA) and International (AA)
SWA, High Frequent
SWA, On Time
AirAsia Focus On Leisure
SWA focus on short time turnarounds
Business Model Similar
Business Model Dissimilar
Southwest only P2P, AirAsia Hub
Regional (SWA) and International (AA)
Code Share, Southwest with ATA. AirAsia with???
AirAsia owned terminal LCCT
Southwest Vacation Package and AirAsia Budget Holiday
AirAsia more options - SMS
AirAsia own Academy and Maintenance Hub
AirAsia practice two aircraft type, Boeing 737 & Airbus 320 instead single aircraft type
Interconnectivity in Asia
Air Asia has an advantage in that the continent has almost no interregional highways and no high-speed international rail. There is a lot of sea in between. Air travel is the only way to develop interconnectivity in Asia.
Usually the low-cost carrier sell tickets from their Web Sites in order to save the costs and the promotional fare must be booked online. However, Air Asia of Malaysia works with Singapore Post Office in order to let the customers buy the tickets in the post office. Therefore, the customers not only can book on line, but also book the tickets through phones or send messages from cell phones. This provides one more good way to let customers to buy tickets more convenient.
Two Types of Aircrafts-
Air Asia has two types of aircraft, Boeing 737 and Airbus A320. A320 aircraft is big different from others. It has a capacity for 162 passengers, offer passengers fixed seating and a fixed feature legroom of 32 inches- a full four inches more than what a typical low-cost carrier offers. This can cited a s a huge variety in terms of aircrafts from Southwest airlines
Low labour cost
The labour cost of Southwest Airlines is usually lower than the mainstream airlines, maybe only about forty percent of them (Anon, 1997). Due to many reasons as the staffs are younger, there are no additional costs on senior staff or those retired staff.
The first Budget Airline in Asia, AirAsia, is based in Malaysia. Initially established by a government-controlled corporation DRB-Hicom, The airlines was sold to the heavily indebted airline was sold to former Time Warner executive Tony Fernandez's company Tune Air for the symbolic sum of one ringgit on December 2nd, 2001.
Fernandes started to formulate an astonishing turnaround, logging a profit in 2002 and introducing new routes from its center in Kuala Lumpur International Airport at swift speeds, reducing former monopoly operator Malaysia Airlines with promotional fares as low as US $2.50.
In 2003, AirAsia opened a second hub at Senai Airport in Johor Bahru near Singapore and launched its first international flights to Indonesia. As of December 2004, AirAsia and its associated companies operated twenty-six Boeing 737-300 flights to Macau started in June 2004./
In December 2004, AirAsia's Indonesian associated company AWAIR was relaunched with Jakarta as its hub. AirAsia also ordered 40 Airbus A320 to replace their ageing Boeing 737-300 fleet and the first Airbus A320 is expected to arrive in January 2006.
AirAsia's airline destinations are Brunei, Alor Star, Johor Bahru, Kuala Lumpur, Kota Bharu, Kota Kinabalu, Kuala Terengganu, Kuchimg, Labuan, Langkawi, Miri, Penang, Sandakan, Sibu, Tawau, Bangkok, Hatyai, Phuket, and Singapore. Most destinations are in South-east Asia.
Although AirAsia only has being operating the business for about four year till now (2005), 1 million passengers traveled per year. AirAsia also claimed their operating cost is lower than other airways in Asia, for about a half of percent, therefore, AirAsia can offer the affordable trip for the Malaysians or other country's citizens in South Asia.
We took a great idea and made it fly
Read on to find out more about this little upstart three-jet airline and how it got off the ground to become one of America's largest and best-loved commercial airlines in history:
(Table A.A The south west time chart 1971-2005, source- http://www.southwest.com/about_swa/airborne.html)
As you can see, we've been busy these past 35 years. And we promise that the next 35 will be just as fun-filled and exciting as the last. We've accomplished quite a bit, and along the way we've earned a title no other airline in the industry can claim: The only shorthaul, low-fare, high-frequency, point-to-point carrier in America. We are proud of our accomplishments, and it just goes to show that time really does fly when you're having fun!
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