Southwest Airways Operations – A Strategic Perspective

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Background:

Southwest Airways is the biggest airline measured by variety of passengers carried annually inside the US. Additionally it is referred to as a ‘low cost airline’ in contrast with its massive rivals within the business. Rollin King and Herb Kelleher based Southwest Airways on June 18, 1971. Its first flights had been from Love Area in Dallas to Houston and San Antonio, brief hops with no-frills service and a easy fare construction. The airline started with one easy technique: “Should you get your passengers to their locations after they need to get there, on time, on the lowest potential fares, and make darn positive they’ve a great time doing it, folks will fly your airline.” This strategy has been the important thing to Southwest’s success. At present, Southwest serves about 60 cities (in 31 states) with 71 million complete passengers carried (in 2004) and with a complete working income of $6.5 billion. Southwest is traded publicly beneath the image “LUV” on NYSE.

Info:

  • The primary main airline to fly a single kind of plane (Boeing 737s)

  • The primary main airline to supply ticketless journey system huge together with a frequent flier program based mostly on variety of journeys and never variety of miles flown.

  • The primary airline to supply a profit-sharing program to its Staff (instituted in 1973).

  • The primary main airline to develop a Website and supply on-line reserving. In 2001, about 40 % ($2.1 billion) of its passenger income was generated by way of on-line bookings at [http://www.southwest.com]. Southwest’s price per reserving through the Web is about $1, in contrast to a price per reserving by way of journey brokers of $6 to $8.

Key aggressive benefits:

  • Low Operational prices / Excessive Operational Effectivity
  • Award profitable customer support

  • Human Useful resource practices / Work tradition

Operations Evaluation – Aggressive Dimensions:

Southwest clearly has a definite benefit in comparison with different airways within the business by executing an efficient and environment friendly operations technique that varieties an necessary pillar of its general company technique. Given beneath are some aggressive dimensions that might be studied on this paper.

  1. Operational Prices and Effectivity
  2. Buyer Service

  3. Worker/Labor Relations

  4. Expertise

  5. Operational Prices and Effectivity

In any case, the airline business general is in shambles. However, how does Southwest Airways keep worthwhile? Southwest Airways has the bottom prices and strongest steadiness sheet in its business, in accordance with its chairman Kelleher. The 2 greatest working prices for any airline are – labor prices (approx 40%) adopted by gas prices (approx 18%). Another ways in which Southwest is ready to maintain their operational prices low is – flying point-to-point routes, selecting secondary (smaller) airports, carrying constant plane, sustaining excessive plane utilization, encouraging e-ticketing and many others.

Labor Prices

The labor prices for Southwest sometimes accounts for about 37% of its working prices. Maybe essentially the most essential component of the profitable low-fare airline enterprise mannequin is attaining considerably increased labor productiveness. In keeping with a latest HBS Case Research, southwest airways is the “most closely unionized” US airline (about 81% of its workers belong to an union) and its wage charges are thought of to be at or above common in comparison with the US airline business. The low-fare provider labor benefit is in rather more versatile work guidelines that enable cross-utilization of nearly all workers (besides the place disallowed by licensing and security requirements). Such cross-utilization and a long-standing tradition of cooperation amongst labor teams translate into decrease unit labor prices. At Southwest in 4th quarter 2000, complete labor expense per out there seat mile (ASM) was greater than 25% beneath that of United and American, and 58% lower than US Airways.

Carriers like Southwest have an amazing price benefit over community airways just because their workforce generates extra output per worker. In a examine in 2001, the productiveness of Southwest workers was over 45% increased than at American and United, regardless of the considerably longer flight lengths and bigger common plane measurement of those community carriers. Due to this fact by its relentless pursuit for lowest labor prices, Southwest is ready to positively impression its backside line revenues.

Gas Prices

Gas prices is the second-largest expense for airways after labor and accounts for about 18 % of the provider’s working prices. Airways that need to forestall enormous swings in working bills and backside line profitability select to hedge gas costs. If airways can management the price of gas, they’ll extra precisely estimate budgets and forecast earnings. With rising competitors and air journey changing into a commodity enterprise, being aggressive on value was key to any airline’s survival and success. It grew to become laborious to move increased gas prices on to passengers by elevating ticket costs because of the extremely aggressive nature of the business.

Southwest has been in a position to efficiently implement its gas hedging technique to save lots of on gas bills in an enormous approach and has the biggest hedging place amongst different carriers. Within the second quarter of 2005, Southwest’s unit prices fell by 3.5% regardless of a 25% enhance in jet gas prices. Throughout Fiscal 12 months 2003, Southwest had a lot decrease gas expense (0.012 per ASM) in comparison with the opposite airways excluding JetBlue as illustrated in exhibit 1 beneath. In 2005, 85 per cent of the airline’s gas wants has been hedged at $26 per barrel. World oil costs in August 2005 reached $68 per barrel. Within the second quarter of 2005 alone, Southwest achieved gas financial savings of $196 million. The state of the business additionally means that airways which can be hedged have a aggressive benefit over the non-hedging airways. Southwest introduced in 2003 that it will add performance-enhancing Blended Winglets to its present and future fleet of Boeing 737-700’s. The visually distinctive Winglets will enhance efficiency by extending the airplane’s vary, saving gas, decreasing engine upkeep prices, and decreasing takeoff noise.

Level-to-Level Service

Southwest operates its flight point-to-point service to maximise its operational effectivity and keep cost-effective. Most of its flights are brief hauls averaging about 590 miles. It makes use of the technique to maintain its flights within the air extra usually and subsequently obtain higher capability utilization.

Secondary Airports

Southwest flies to secondary/smaller airports in an effort to scale back journey delays and subsequently present wonderful service to its clients. It has led the business in on-time efficiency. Southwest has additionally been in a position to trim down its airport operations prices comparatively higher than its rival airways.

Constant plane

On the coronary heart of Southwest’s success is its single plane technique: Its fleet consists completely of Boeing 737 jets. Having frequent fleet considerably simplifies scheduling, operations and flight upkeep. The coaching prices for pilots, floor crew and mechanics are decrease, as a result of there’s solely a single plane to be taught. Buying, provisioning, and different operations are additionally vastly simplified, thereby decreasing prices. Constant plane additionally permits Southwest to make the most of its pilot crew extra effectively.

E-Ticketing

The concept of ticketless journey was a serious benefit to Southwest as a result of it might decrease its distribution prices. Southwest grew to become digital or ticketless again within the mid-1990s, and at present they’re about 90-95% ticketless. Clients who use bank cards are eligible for on-line transactions, and at present Southwest.com bookings account for about 65% of complete income. The CEO Gary Kelly thinks that this concept would develop additional and that he would not be shocked if e-ticketing accounted for 75% of Southwest’s revenues by finish of 2005. Prior to now, when there was a 10% journey company fee paid, it used to price about $Eight a reserving. However presently, Southwest is paying between 50 cents and $1 per reserving for digital transactions that translate to large price financial savings.

  1. Worker and Labor Relations

Southwest has been extremely regarded for its revolutionary administration fashion. It maintains a relentless give attention to high-performance relationships and its people-management practices have been the important thing to its unparalleled success within the airline business.

Mission Assertion

To Our Staff

“We’re dedicated to offer our Staff a steady work atmosphere with equal alternative for studying and private progress. Creativity and innovation are inspired for enhancing the effectiveness of Southwest Airways. Above all, Staff might be supplied the identical concern, respect, and caring angle inside the group that they’re anticipated to share externally with each Southwest Buyer.”

The Southwest mission assertion reveals that the corporate has a powerful dedication to its workers. The corporate affords the identical respect to its workers that’s supplied to its clients. The Southwest mission assertion is exclusive in that it acknowledges the significance of its workers inside the broader enterprise technique, which emphasizes very good customer support and operational effectivity. The workers reciprocate the respect, loyalty and belief that Southwest demonstrates. Southwest workers are identified for his or her loyalty, dedication, angle and innovation. The workers are the distinguishing issue between Southwest and the remainder of the airline business.

Hiring

Southwest hiring coverage is exclusive not solely inside the airline business, but additionally extra broadly, and revolves round discovering folks with the best angle that can thrive within the Southwest tradition. In depth procedures are employed to rent for optimistic angle and dedication. Those that don’t posses these qualities are weeded out. Colleen Barrett, a non-operational officer at Southwest, states that

“Hiring is essential, since you can’t institutionalize habits. As an alternative, it’s essential to determine these individuals who already follow the behaviors you might be in search of. Then you possibly can enable Staff to be themselves and make choices about Customer support based mostly on frequent sense and their pure inclinations.” 1

Recruiting and interviewing at Southwest is a two-step course of. Step one is a gaggle interview, carried out by workers, the place communication expertise of potential candidates are evaluated. The following steps on this course of are one on one interview, the place the candidates’ attitudes and orientation towards serving others are evaluated. These hiring standards apply to all job features since all Staff at Southwest play a customer support position. A essential a part of Southwest operational technique is that each job at Southwest is a customer support place, whether or not it instantly applies to the shopper or whether or not it’s inner.

The desk beneath reveals that though Southwest is essentially the most closely unionized airline, at roughly 80%, that contract negotiations between the unions and Southwest are a lot shorter in length than of the opposite main carriers. This reveals the standard of relationship that Southwest has with its workers and with the unions that symbolize them.

Tradition

Southwest was created as a distinct sort of firm and from its beginnings a novel tradition was nurtured. In 1990 Colleen Barrett shaped the Southwest Tradition Committee. That is distinctive inside the business and amongst all massive corporations. The committee additionally has a mission assertion:

“This group’s purpose is to assist create the Southwest spirit and tradition the place wanted; to counterpoint it and make it higher the place it already exists; and to liven it up in locations the place it is likely to be “floundering”. Briefly, this group’s purpose is to do “no matter it takes” to create, improve, and enrich the particular Southwest spirit and tradition that has made this such a beautiful Firm/Household.”

It’s this distinctive strategy to firm values that has created a tradition that differentiates itself from others. Southwest’s tradition is the explanation why it’s profitable.

  1. Buyer Service

The Mission of Southwest Airways

The mission of Southwest Airways is dedication to the very best high quality of Buyer Service delivered with a way of heat, friendliness, particular person satisfaction, and Firm Spirit.

Method

Herb Kelleher, founding father of Southwest, has been quoted as saying that “We’re within the Customer support enterprise; we simply occur to offer airline transportation”.2 Award profitable customer support is a distinguishing attribute of Southwest and it’s referred to internally as “Positively Outrageous Service”. It implies that from the highest to backside everybody does no matter she or he can to fulfill the shopper. This consists of Herb Kelleher, who has been identified for serving to out baggage handlers on Thanksgiving. It’s by way of emphasizing the shopper and worker that Southwest is ready to differentiate itself from others within the airline business. On a extra technical stage, every worker or group inside Southwest has his or her personal buyer. Because of this each worker ‘serves’ in a technique or one other regardless of not being instantly concerned with the passenger. The mechanic’s buyer is the pilot and the caterer’s is the flight attendant.

Outcomes

It may be stated that the “Positively Outrageous Service” that’s distinctive to Southwest “just isn’t the results of a division, or a program, or a mandate from administration. It’s not secondary to the product; it’s the product.” This strategy creates the circumstances the place Staff usually tend to deal with clients in ways in which distinguish the corporate from others. There are quite a few accounts of passengers who’ve obtained distinctive therapy from Southwest workers.

The query that must be answered is how Southwest’s customer support is totally different and why? Is it frequent for patrons of different airways to rave about their particular service? The reply is that it’s not. Whereas Southwest doesn’t have a monopoly on people who find themselves sort and who’re keen to go above and past to fulfill a buyer, such habits is nurtured at Southwest to a a lot larger extent.

It could possibly then be concluded that the customer support that’s inherent to Southwest is part of its tradition. This tradition is supported by way of worker encouragement to do the additional to fulfill the shopper. This strategy conjures up individuals who would ordinarily solely once in a while exit of their approach to assist somebody, to turn out to be constant performers that provide distinctive service on a regular basis. Southwest workers are what differentiate its customer support from the opposite airways.

  1. Expertise

Southwest makes use of know-how in some ways to meet its enterprise targets and keep its environment friendly operations. In keeping with its CEO, know-how equals productiveness. Launched in 1996, ticketless journey was first launched by Southwest. On Could 1st 2000, Southwest Airways introduces “SWABIZ,” a portal that assists firm journey managers in reserving and monitoring journeys made by way of its site [http://www.southwest.com]. There are a lot of new know-how initiatives being undertaken presently and a few are within the pipeline.

Bar codes in Boarding Passes

Southwest Airways has invested $12 million through the previous three years to standardize company and terminal operations on about 10,000 Dell OptiPlex desktop and Latitude pocket book computer systems in accordance with its firm executives. Southwest wished to switch its well-known, brightly coloured plastic boarding passes with an digital system with bar-code paper boarding passes. So it put in about 350 contact display ticket readers powered by Dell OptiPlex desktops. The bar code offers Southwest extra data to robotically reconcile the variety of boarding passes with the variety of passengers that really board the aircraft.

Though the know-how will assist Southwest Airways stay environment friendly by consolidating passenger data for the corporate’s 3,000 every day flights, there have been considerations it might lengthen the time to get vacationers on board. Nonetheless it was discovered that scanning every bar code on the boarding passes did not enhance or shorten boarding schedules, but it surely did take minutes from administrative processes, comparable to wanting up buyer information. The brand new paper bar code system is giving Southwest ticket brokers the power to match a buyer file inside having to scroll by way of and log into a number of software program screens. The method is rather more automated. As soon as the bar code on the boarding move is scanned on the terminal gate it checks off the individual from the passenger listing in actual time.

The previous course of was handbook that concerned discovering the knowledge, scrolling by way of a number of software program screens from reservations to check-in to boarding. The bar code {hardware} to scan the boarding passes has been deployed. The corporate is within the strategy of changing customer support back-office gear at airports together with at its headquarters in Dallas.

Software program Upgrades

Software program functions, comparable to these utilized by clerks to examine in passengers, are being changed. Southwest Airways’ internally written “Airport Software Suite” is anticipated to rollout subsequent 12 months as the corporate transitions from inexperienced screens to Window-based person interface. Much like Wal-Mart Shops Inc., Southwest Airways believes in creating in-house the software program that runs its operations. The corporate makes use of little or no off-the-shelf software program. There are between 75 and 100 tasks within the works annually supported by roughly 900 IT workers.

RFID

Radio frequency identification know-how, a good different to bar-coding for baggage identification, can be on Southwest’s radar. It plans to check RFID know-how someday in 2006. Although, Southwest is taking part in a bit catch-up with different airways comparable to Air Tran, Alaska and Champion Airways, in lots of circumstances they’re in a position leapfrog to extra refined functions simply having waited longer.

Challenges:

Southwest has emerged very profitable, regardless of essentially the most troubled occasions within the airline market. Nonetheless, it faces new challenges within the face of accelerating competitors from different low fare airways comparable to JetBlue, ATA airways, America West.

Reserved Seating

Because of growing safety pointers since September 2001, Southwest would want to organize for assigned (reserved) seating to trace its in-flight passengers. This modification will contain massive know-how investments and will impression its gate operations negatively because the present approach of unassigned seating has helped in fast gate turnarounds.

Passenger Demand

The keep-it-simple philosophy has served Southwest nicely. However as its personal enterprise grows and grows extra complicated, with plans to buy dozens of latest plane and an anticipated upsurge in passenger visitors to about 80 million boarding’s a 12 months, the simplicity technique that has been mirrored within the airline’s IT philosophy is evolving. The CIO Tom Nealon says that “It is time to adapt our enterprise processes for effectivity. As our airline scales for us to offer the identical sort of high-touch customer support, we’ve got to automate numerous issues we have been in a position to do with out know-how beforehand. The problem is doing that with out conceding the shopper contact.” Southwest can be aggressively pursuing buyer relationship administration (CRM) methods and has functions to get perception into buyer’s desires and dislikes. In keeping with an interview with its CEO Gary Keller, Southwest has its give attention to enhancing in two areas – buyer’s airport expertise and in-flight expertise.

In-Flight Leisure

In an general effort to enhance buyer’s in-flight expertise, in-flight leisure is one thing that Southwest is presently evaluating and which JetBlue has been very profitable at already due to its introduction in its long-haul flights. As compared, Southwest has 415 airplanes to contemplate and that represents an funding choice at a complete new dimension. Moreover, Southwest has to contemplate how issues could match into their atmosphere. At this level, 60% of its service continues to be very brief haul. Southwest must be conscious of the truth that a sure strategy that has been profitable for its competitor will not be essentially work to its benefit.

Abstract:

Southwest has lengthy been thought to be a benchmark in its business for operational excellence. Southwest Airways is a wonderful instance of an organization that’s dedicated to its core competencies – environment friendly operations to drive its low price construction, excellent supply of customer support and revolutionary HR administration practices. We hope this paper supplied a great perception into Southwest operations, as a part of its general technique, to attain success and acquire aggressive benefit.

References:

  1. [http://www.southwest.com] (Southwest airways official site)
  2. “Southwest retains it easy” – Air Transport World, April 2005, Pg 36

  3. “Across the World on $48 (or So): How Excessive Can Low cost Airways Fly?“ Technique Administration – Information@ Wharton Publication Oct 5, 2005

  4. TechWeb – [http://www.techweb.com/wire/ebiz/173601227]

  5. “Southwest’s Technique for Success: Consolidate!” – Oracle Journal (Sept/Oct 2004 version) http://www.oracle.com/technology/oramag/oracle/04-sep/o54swest.html

  6. “Southwest Airways: Excessive Tech, Low Prices” – Eweek.com, April 2005

  7. “Jet Gas Hedging Methods: Choices Accessible for Airways and a Survey of Trade Practices” – Kellogg Faculty of Administration Analysis Paper, Spring 2004

  8. Successful Conduct: What the Smartest, Most Profitable Corporations Do Otherwise, Terry R. Bacon and David G. Pugh, 2003

  9. Time Journal, Oct 28th 2002 problem, Vol. 160 Subject 18, p. 45

  10. “Wings Of Change”,Info Week, March 28, 2005,

11. Labor Contract Negotiations within the Airline Trade, Month-to-month Labor Overview, July 2003, web page 24



Source by Mukund Srinivasan

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