Southwest Airlines Operations - a strategic perspective

Background:

Southwest Airlines is the largest airline by number of passengers will be measured each year in the United States. It is also known as "discount airline" in comparison with his great rival in the industry. Rollin King and Herb Kelleher, Southwest Airlines, founded on 18 June 1971. The first flights were from Love Field in Dallas to Houston and San Antonio, short hops with no-frills service and a simple tariff structure. The airline began with a simpleStrategy: "If your passengers to their destinations if they want it to get on time to the lowest possible prices, and make damn sure that they have a good time to do it, the people with your airline to By air. " This approach was the key to the success of Southwest. Currently, Southwest serves 60 cities (in 31 states) with a total of 71 million passengers (in 2004) and with a total of 6.5 billion dollars. South West is publicly traded under the symbol"LUV" on the NYSE.

Facts:

* The first to fly a single large airline aircraft (Boeing 737)

* The first to offer Ticketless travel system, including major airline frequent flyer program from a wide number of trips is based and not number of miles flown.

* The first airline to offer instituted a profit-sharing program for its employees (1973).

* The first major airline to develop a website and book offer online. In 2001 about 40 per cent (2.1 billion U.S. $)of its revenue from online bookings was generated on [http://www.southwest.com]. Southwest, the cost per booking over the Internet is about $ 1, compared to a cost per booking through travel agents from $ 6 to $ 8

Decisive competitive advantages:

* Low operating costs / high cost

* Award Winning Customer Service

* Human Resource Practices / Work Culture

Operations Analysis - Competitive weight:

Southwest has a clearly markedAdvantage over other airlines in the industry compared with the implementation of an effective and efficient operating strategy, which forms an important pillar of corporate strategy. Given below are some competitive dimensions that are examined in this paper.

1st Operating costs and efficiency

2nd Customer Service

3rd Staff / Personnel Director

4th Technology

1st Operating costs and efficiency

After all, the airline industry overall is in ruins. But how doesSouthwest Airlines stay profitable? Southwest Airlines has the lowest costs and highest record in its sector, after its chairman, Kelleher. The two largest operating expenses for any airline - will wage costs (40%), followed by fuel costs (18%). Some other possibilities, such as South West is able to keep their operating costs low - point-to-point links, the choice of secondary (smaller) airports, consistent implementation of aircraft, maintaining the high utilization of aircraft,Promoting e-ticketing, etc.

Labor

The labor cost for South West usually accounts for about 37% of their operating costs. Perhaps the most important element of successful low-fare airline business model is to achieve the much higher labor productivity. are according to a recent HBS Case Study, Southwest Airlines "Most are organized strongly unionized U.S. airline (about 81% of employees belong to a union) and their salaries as at or above averageagainst the U.S. airline industry. The low-fare carrier is advantage in the labor market more flexible work rules with cross-utilization of nearly all employees (except where prohibited by the licensing and safety standards). Such cross-utilization and a long-standing culture of cooperation between the working groups to translate into lower unit labor costs. In South West in the 4th Quarter of 2000, the total labor costs per available seat mile (ASM) more than 25% below the United and American, and 58%less than U.S. Airways.

Airlines like Southwest have a huge cost advantage over network airlines, only because their workforce generates more output per employee. In a study in 2001, employee productivity Southwest over 45% higher than American and United, despite the significantly longer flight duration lengths and larger average size of this aircraft carrier. Therefore, through his tireless search for the lowest labor costs, Southwest is able positive impact of theirThe bottom line revenue.

Fuel costs

The cost of fuel is the second largest expense for airlines after labor, which represents approximately 18 percent of the support of operating costs. Airlines, to prevent large fluctuations in operating profitability and want to hedge fuel prices select line. If airlines, the cost of fuel, they can estimate more accurately forecast budgets and profit. With growing competition and air travel to a commodity business, withCompetitive on price was the key to any airline's survival and success. It was hard to pass on higher fuel costs to passengers by ticket prices, the strong competition in the industry.

Southwest was able to successfully implement save their fuel-hedging strategy on fuel costs in a big way and has the largest hedge position among other carriers. In the second quarter of 2005, Southwest's unit costs by 3.5%, despite a 25% increase in keroseneCosts. In fiscal 2003, Southwest had much lower fuel costs (0.012 per ASM) in comparison to other airlines, with the exception of JetBlue as shown in Figure 1 below. In 2005 85 percent of the airline's fuel needs has been secured at $ 26 per barrel. World oil prices in August 2005 reached $ 68 per barrel. In the second quarter of 2005 alone, South West achieved fuel savings of 196 million dollars. The state of the industry, suggests that airlines who have secured ACompetitive advantage over non-hedging airlines. Southwest announced in 2003 that it would add performance-enhancing blended winglets for its current and future fleet of Boeing 737-700 is. The visually distinctive winglets will reduce the performance by increasing the airplane's range, saving fuel, maintenance costs and reducing the launch mass to improve noise.

Point-to-Point Service

Southwest operates its flight point-to-point service for its operational efficiency to maximizeStay and cost. Most of her short flights from an average of about 590 miles. It uses the strategy, and often keep their flights in the air and achieve better utilization.

Secondary airports

Southwest flies to reduce secondary / smaller airports in an effort to travel delays and thus provide excellent service to its customers. It has led the industry in on-time performance. South West was also able to trim after his airportOperating costs relatively better than its rival airlines.

Consistent aircraft

In the heart of the South West of success is the only aircraft Strategy: The fleet consists exclusively of Boeing 737 jets. Through joint fleet significantly simplifies the design, operation and maintenance of flight. The training costs for pilots, ground crew and mechanics lower because it only learn a single plane. Purchasing, procurement, supply and other operations are also greatly simplified,thereby reducing costs. Consistent aircraft also allows Southwest to use his crew pilot more efficiently.

E-Ticketing

The idea of the travel ticket was a big advantage, South West, because they might reduce their distribution costs. South West was electronic or Ticketless back to the mid-1990s, and today they are about 90-95% Ticketless. Customers who use credit cards are eligible for online transactions, and today Southwest.com bookings account for about 65% of total sales.The CEO Gary Kelly believes that the idea that he would continue to grow and not be surprised if e-ticketing represented 75% of the South West sales by 2005. In the past, when there is a 10% travel agent commission paid, it used to cost about $ 8 a reservation. But now Southwest is paying between 50 cents and $ 1 per booking for electronic transactions, which translate to huge cost savings.

2nd Staff and Director

South West has been highly regarded for hisinnovative management style. It maintains a relentless focus on high-performance relations and people-management practices have the key to their unprecedented success in the airline industry.

Mission Statement

For our employees
"We are committed to our employees a stable work environment with equal opportunities for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all,Employees receive the same concern, respect will be provided, and caring attitude within the organization that they are expected to share externally with every Southwest Customer. "

The Southwest Mission Statement shows that the company has a strong commitment to its employees. The company offers the same respect to its employees that their customers will be provided. The Southwest model is unique as it recognizes the importance of employees in the wider economyStrategy, the best customer service and operational efficiencies emphasized. The employees say the respect, loyalty and trust that South West demonstrated. Southwest employees for their loyalty, dedication, attitude and innovation known. The employees are the distinguishing feature between Southwest and the rest of the airline industry.

Rent

South West recruitment policy is unique not only within the airline industry, but also in the broader sense, and is about findingPeople with the right attitude that can thrive in the Southwest culture. Extensive procedures are used to rent for the positive attitude and commitment. Those who do not possess these qualities are weeded. Colleen Barrett, a Non-Operational Officer, South West, they say, that

"Rent is critical, because we can not institutionalize behavior. Instead, you must identify those people who are already practice the behaviors you are looking for. Then you can enable employees tothemselves and make decisions about customer service on the common sense and their natural inclination is based. "1

Recruiting and interviews with South West is a two-step process. The first step is a group interview conducted by staff, where communication skills of potential candidates are evaluated. The next steps in this process are one to one interview, in which the candidate recruitment and orientation to the service are valued in others. This setting of criteria apply to allFunctions, as all staff at South West play a role in customer service. A critical part of the South West operational strategy is that every job at Southwest is a customer service position, whether it applies directly to the customer, or whether it is internal.

The table below shows that although South West is the most heavily unionized airlines in some 80% said that the contract negotiations between the unions and the South West are much shorter than that of other major airlines.This shows the quality of the relationship that Southwest has with its employees and the unions that represent them.

Culture

South West was created as a different kind of company and from its beginnings nurtured a unique culture. In 1990, Colleen Barrett formed the South West Committee for Culture. This is unique within the industry and among all large companies. The Committee also has a Mission Statement:

"This group has the goal to create the South West and spiritCulture, where necessary, to enrich, and make it better where it already exists, and revive him dangle in places where it could be ". In short, this group is to do the objective, "whatever it" takes to create, expand and enrich the special South West spirit and culture that it has made such a wonderful company / family. "

It is this unique approach to business, the values of a culture that is different from others created. South West culture is the reason why itsuccessful.

3rd Customer Service

The mission of Southwest Airlines
The mission of Southwest Airlines is dedication to the highest quality of customer service with a feeling of warmth, friendliness delivered, individual pride and Spirit Company.

Approach

Herb Kelleher, founder of Southwest, with the words: "We are in the customer service business have been cited, and we just happened to offer aviation history" .2 Award-winning customer service is a differentiatorFeature of the South West and it is internally known as "Positively Outrageous Service." It means that from top to bottom, everyone does what he or she can satisfy the customer. This includes Herb Kelleher, who is in support of baggage handling made famous on Thanksgiving. It is by the emphasis on customer and employee satisfaction that may Southwest from others in the airline industry to be distinguished. At the technical level of each individual employee or groupin the Southwest has its own customers. This means that every employee, "" is used in one way or another, although not directly involved with the passenger. The mechanic's customer is the pilot and the caterer's is the stewardess.

Results

It can be said that the "Positively Outrageous Service", which is unique for South West is not the result of a department or a program or contract management. It is not secondary to the product, it isthe product. have received "This approach creates the conditions where employees are more customers in a way of distinguishing the company to be treated by others. There are numerous reports of travelers, the exceptional treatment from Southwest employees.

The question that needs to be answered is how Southwest customer service differently and why? Is it common for the customers of other airlines rave about their special service? The answer is that it is not. DuringSouthwest does not have a monopoly on the people who are kind and willing to go above and beyond to satisfy a customer, such behavior feeds in South West to a much greater extent.

It can be concluded that the customer service that Southwest is an inherent part of their culture. This culture is supported by staff encouragement to do the extra content for the customer. This approach inspired people there to help get under normal circumstances, only on occasion out of the waysomeone to become consistent, that performers offer exceptional service to all the time. Southwest employees are what differentiate their customer service from other airlines.

4th Technology

Southwest uses technology in many ways to meet their business objectives and to its efficient operation. According to CEO, meets technology productivity. That was in 1996, ticket would first introduced by South West. 1 Introduced in May 2000, Southwest Airlines"SWABIZ", a portal, the company travel managers to help make when booking and tracking trips through its website [http://www.southwest.com]. There are many new technological initiatives are underway and some are in the pipeline.

Bar-code boarding passes in

Southwest Airlines has invested 12 million U.S. dollars in the past three years to standardize corporate and terminal operations on about 10,000 Dell OptiPlex desktop and Latitude notebook computers after his companyExecutives. South West wanted his well-known, brightly colored plastic boarding passes with an electronic system with bar code paper boarding passes replace. It is about 350 installed touch-screen ticket readers powered by Dell OptiPlex desktops. The bar code contains more information about Southwest automatic adjustment of the number of boarding passes with the number of passengers who actually board the aircraft.

Although the technology help, Southwest Airlines remains with efficientPassenger information for the company's 3,000 daily flights were consolidation, it could renew concerns about time to get on board the passenger. However, it was found that scanning each bar code to increase the boarding pass or not to cut flight schedules boarding school, but it did take a few minutes of administrative processes, such as looking up customer data. The new paper bar code system to give Southwest ticket agents the ability to record a customer within scroll Matchby and sign up multiple software screens. The process is much more automated. Once the barcode on the boarding pass is scanned at the gate, it hooks the person on the passenger list of real-time.

The old manual process was involved to find the information, scrolling through several screens to reservations software for check-in to boarding. The bar code hardware to scan the boarding passes were posted. The company is in the process of replacing customersService back-office equipment at airports, including at its headquarters in Dallas.

Software upgrades

Software applications, such as used by officials to check in passengers, will be replaced. Southwest Airlines' internal written "Airport Application Suite" is expected to rollout in the coming year as the company believes transitions from green screens to Windows-based user interface. Similar to Wal-Mart Stores Inc., Southwest Airlines in the development of in- house is the software that theirOperations. The company uses some off-the-shelf software. There are 75 to 100 projects in the works every year from around 900 IT staff support.

RFID

Radio frequency identification technology, an affordable alternative to bar code identification for baggage, including South West's radar. She plans to RFID technology sometime in 2006 to test. Even if, at South West a little catch-up with other airlines such as Air Tran, Alaska, and ChampionAirlines, in many cases they are able to simply wait for more complex applications with LeapFrog.

Challenges:

South West has turned out very successful, despite the troubled times in the airline market. However, it faces new challenges, given the increasing competition from other low-fare airlines like JetBlue, ATA Airlines, America West.

Reserved seats

By increasing the safety guidelines in September 2001, Southwest would have to prepare forassigned (reserved) seats to its passengers in-flight length. This change will make major investments in technology and can influence its operations Gate negative, since the current nature of the unassigned seating has helped in quick gate turnarounds involve.

Passenger Demand

The Keep-it-simple philosophy has served well Southwest. But when her own business grows and grows increasingly complex, with plans to buy dozens of new machines and an expected recovery in passenger traffic by about 80 millionBoarding is a year, the simplicity, the strategy in the airline's IT philosophy has been developed against him. The CIO Tom Nealon says, "It is time to adapt to our business processes for efficiency. As our airline fares, which offer us the same kind of high-touch customer service, we need to automate a lot of things we were able to do without technology before. The challenge here is that the customer to touch a clean sheet. "South West is also aggressively pursuing customersRelationship Management (CRM) techniques and applications that will bring insight into the customer and dislikes. According to an interview with the CEO, Gary Keller, South West, with an emphasis on the improvement in both areas - airport customer experience and in-flight experience.

In-Flight Entertainment

In a comprehensive effort to help customers better in-flight experience, in-flight entertainment something that Southwest is considering, and JetBlue has been verysuccessful, because even at its introduction in its long-haul flights. By comparison, South West to examine 415 aircraft and represents an investment, the decision to a whole new dimension. In addition, Southwest has to consider how things can fit in their environment. At that time, 60% of his service is still very short. South West must be aware of the fact that a particular approach that has been successful for its competitors may not necessarily work to theirAdvantage.

Summary:

Southwest has long been regarded as a benchmark in the industry for Operational Excellence. Southwest Airlines is a fine example of a company that is committed to drive their core competencies - efficient operation of its low cost, outstanding customer service and delivery of innovative HR management practices. We hope that this paper provided a good look at Southwest's operations, as part of its overall strategy for success and to achieve competitive advantageAdvantage.

References:

1st [Http: / / www.southwest.com] (South West Airlines official website)

2nd "Southwest keeps it simple" - Air Transport World, April 2005, PG 36

3rd "Around the World on $ 48 (or so): How high can fly discount airlines?" Strategy Management - Knowledge @ Wharton Newsletter October 5, 2005

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

5th "Southwest's Strategy for Success: Consolidate!" - OracleMagazine (September / October 2004 issue) http://www.oracle.com/technology/oramag/oracle/04-sep/o54swest.html

6th "Southwest Airlines High Tech, Low Costs - Eweek.com, April 2005

7th "Jet Fuel Hedging Strategies: Options available for airlines and a survey of industry practices" - Kellogg School of Management Research Paper, Spring 2004

8th Winning Behavior: What is the smartest, most successful companies do differently, Terry R. Bacon and David G. Pugh,2003

9th Time Magazine, 28 October 2002 issue, Vol 160 Issue 18, p. 45

10th "Wings Of Change", Information Week, 28 March 2005

11th Laboratory contract negotiations in the airline industry, Monthly Labor Review, July 2003, page 24

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