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Southwest Airlines 2008 Essay Sample

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Southwest Airlines 2008 Essay Sample

Problem Identification:
Will Southwest Airlines able to maintain its top position and level of customer satisfaction whilst expanding its business domain? SWOT Listing:
* Attractive fares and marketing strategies.
* Point to Point flights.
* Best turnaround time compared to its competitors.
* First to sell seats through Internet sites.
* Positively Outrageous customer service.
* Maintained Co-operative labor relations.
* They always worked towards the employee development by constantly motivating, training and awarding them with accolades.
* Low operating costs.
* Service changes adopted in 2007 further helped improve its standing in the industry.
* Financials were secure(debt- equity ratio much lower than industry average).

* Operated without a hub and spoke model which was considered as a cost saving method for other airlines.
* Formulations of expansion strategies in the Northwest were unclear.
* With inclusion of Northwest region in its flight schedule, its operation costs were going high. Opportunities:

* Expansion into the Northwest region, the most densely populated area of the country posed tremendous growth for Southwest airlines.
* Venturing into the International market.
* Air Traffic in its functioning areas more than doubled after its establishment increasing its opportunities.

* Fluctuating oil price changes.
* Unprecedented rise in operating expenses.
* In cases of insufficient demand, point to point flights proved to be economically unfeasible.

* Airline Deregulation Act of 1978 led to entry of many players in the market and intense competition with low fares. * September 11 2001, terrorist attack led to tremendous losses(about $30 billion) of the airline industry due to the fear that was instilled in the flyers. * Fuel crisis of 1979 caused due to the Iranian Revolution caused difficulties to the industry. * Air traffic controllers’ strike of 1981 where higher wages were demanded by the controllers also caused difficulties to the industry. * Introduction of stricter government regulations for aircraft safety maintenance. * Open skies agreement in 2007 which lead to higher competition. * Rise in fuel prices in 2008 which put a damper on the industry’s profitability. * Limited labor flexibility caused due to Restrictive Labor Union Agreements. Economical:

* 80% of the airline operating cost were fixed or semi variable. This made this industry the worst net profit margin performers compared to other industries. * Fuel costs formed 17% of the total operating costs in 2004 and 31% in 2008. * Huge investments were required for gate acquisition and terminal construction. * Hub and spoke models were efficient in maintaining operating costs. * Low affordable pricing of fares- Two-tier pricing structure was developed by Southwest to cater to business travelers and price sensitive leisure travelers. Social:

* The deregulation act led to reduction of fares which in turn made the airline services affordable to a larger section of society. * The southwest spirit led to tremendous employee trust which was portrayed in their customer service. * The Positively outrageous customer service led to great customer trust. * Its operation strategies of low turnaround time led to an increase in its business travelers/time sensitive travelers. * After the 9/11 terrorist attack, Introduction of stricter government regulations for aircraft safety maintenance reduced the fear amongst the travelers and stabilized demand. Technological:

* Due to high fixed costs, airlines developed sophisticated software tools to maximize capacity utilization. * Airlines analyzed travel patterns on routes based on yield management systems. * Introduction of internet ticket booking helped save travel agent costs. * Galileo and Worldspan reservation systems helped in reducing costs. * Revamped gate areas with television monitors, power ports, etc. Legal:

* Southwest airlines faced many legal battles with other airline carriers during the inception of the company.

* Low Turnaround time compared to industry standards
* Excellent relationship with the 84% of its unionized labour
* Average age of SWA was only 7 years, while a Boeing 737 easily lasts for a 20 odd years
* Did not operate in the hub and spoke model

* No direct transferring of baggage into other airlines
* Service limited to U.S domestic market
* Short haul, point to point flights
* Technology friendly approach (one of the first airlines to have an own webpage)
* Frequent flyer program based on number of flights
* Flew to uncongested airports of small cities and less congested airports of large cities
* Increasing operation costs not compensated by increase in fares
* Entry of European airline companies in US market

Critical Factors
* Did not operate in the hub and spoke model
SWA flights flew non-stop and did not believe in connecting services because it resulted in planes spending more time on the ground waiting for customers to arrive from connecting points

* Service limited to US domestic market
Over the years SWA’s choice of market resulted in significant growth in air travel at the US domestic market and at the choice of its locations. SWA was the dominant carrier in a number of cities, ranking 1st in market share in more than 50% of the largest U.S. city pair markets.

* Low Turnaround time compared to industry standards US industry average turnaround time was 55 minutes while SWA’s two out of three planes where turned around in 15 minutes flat!

* Excellent relationship with the 84% of its unionized labour Usually the unions cause a lot of the problem to the organizations during recession and low productivity times. Their excellent relationship with the union ensured that it didn’t happen in SWA’s case

1. The Functional or group approach of leadership
Leadership can be learned and developed. Focuses on the accountabilities, responsibilities and functions of the leader and the nature of the group. Examines how the leader’s behaviour affects and is affected by the group of followers. In this kind of leadership, employees are similar to their leader; they form the inner circle of communication.

2. Sustaining the organizational culture
Organizations of all sizes are finding it necessary to expand their operations across geographic boundaries in a phenomenon that has been referred to as the globally distributed team. While this trend is typically a response to business opportunity, it is not without challenges. One of those challenges is how to maintain organizational culture as teams become globally distributed. The goal of the research detailed in this chapter was to examine a single organization that has been utilizing distributed teams to facilitate product development. A single case study method was used. Data was gathered through a series of semi-structured interviews with employees who participated in a distributed product development team. The chapter includes a review of the organization’s approach to orienting employees to the organizational culture, maintaining focus on the culture over a period of years, and extending the culture to support globalization while maintaining the integration of distributed teams into the overall organization.

(Reference: Theory 1 and Theory 2)

* Conservative growth approach
Priority must be given to expansion within the current route structure. Operating more flights to uncongested airports of small cities and less congested airports of large cities. * External expansion

After the collapse of Midwest airlines in 1991, SWA moved to Midway airport and anchored there. With the crisis looming large over the airline industry, SWA must look to capitalise on such opportunities. * Growth with consistency

Whenever they enter the new market, they must make sure that they do business which is consistent throughout the system Constraints
* Possible losses in the short term: While going for the external expansion and conservative growth approach policies, SWA might need some time to pull customers in their new route. It’s highly probable that they would end up in losses during the short term * Absence of Kelleher

Kelleher was very instrumental in writing the SWA’s success story. He brought in the culture that took SWA to its heights and made the customers love and respect the firm. Without him in the leading role, SWA would need to find a fitting person to take the firm forward!

Course of Action:
Southwest Airlines has a large potential in the northeast as well as in other international markets. Air Traffic in its functioning areas doubles after its establishment increasing its opportunities in the new markets. But before expanding into other markets (domestic or international) they should analyze and develop expansion strategies taking into consideration factors like airport congestion and air traffic control delays. They should see to it that the above mentioned factors do not obstruct its operational efficiency for which they are famous.

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