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Background:

Southwest Airlines is the largest airline measured by amount of passengers carried each year within the United States. It is also known as a ‘discount airline’ compared with its large rivals in the industry. Rollin King and Herb Kelleher founded Southwest Airlines on June 18, 1971. Its first flights were from Love Field in Dallas to Houston and San Antonio, short hops with no-frills service and a simple fare structure. The airline began with one simple strategy: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, habitancy will fly your airline.” This coming has been the key to Southwest’s success. Currently, Southwest serves about 60 cities (in 31 states) with 71 million total passengers carried (in 2004) and with a total operating revenue of .5 billion. Southwest is traded publicly under the seal “Luv” on Nyse.

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Facts:

* The first major airline to fly a particular type of aircraft (Boeing 737s)

* The first major airline to offer ticketless tour theory wide together with a frequent flier schedule based on amount of trips and not amount of miles flown.

* The first airline to offer a profit-sharing schedule to its Employees (instituted in 1973).

* The first major airline to build a Web site and offer online booking. In 2001, about 40 percent (.1 billion) of its passenger revenue was generated straight through online bookings at [http://www.southwest.com]. Southwest’s cost per booking via the Internet is about , compared to a cost per booking straight through tour agents of to .

Key contentious advantages:

* Low Operational costs / High Operational Efficiency

* Award winning customer service

* Human reserved supply practices / Work culture

Operations diagnosis – contentious Dimensions:

Southwest clearly has a distinct advantage compared to other airlines in the commerce by executing an sufficient and sufficient operations strategy that forms an prominent pillar of its farranging corporate strategy. Given below are some contentious dimensions that will be studied in this paper.

1. Operational Costs and Efficiency

2. Customer Service

3. Employee/Labor Relations

4. Technology

1. Operational Costs and Efficiency

After all, the airline commerce farranging is in shambles. But, how does Southwest Airlines stay profitable? Southwest Airlines has the lowest costs and strongest equilibrium sheet in its industry, according to its chairman Kelleher. The two biggest operating costs for any airline are – labor costs (approx 40%) followed by fuel costs (approx 18%). Some other ways that Southwest is able to keep their operational costs low is – flying point-to-point routes, choosing secondary (smaller) airports, carrying consistent aircraft, maintaining high aircraft utilization, encouraging e-ticketing etc.

Labor Costs

The labor costs for Southwest typically accounts for about 37% of its operating costs. Perhaps the most needful element of the prosperous low-fare airline enterprise model is achieving significantly higher labor productivity. according to a modern Hbs Case Study, southwest airlines is the “most heavily unionized” Us airline (about 81% of its employees belong to an union) and its salary rates are determined to be at or above average compared to the Us airline industry. The low-fare carrier labor advantage is in much more flexible work rules that allow cross-utilization of virtually all employees (except where disallowed by licensing and safety standards). Such cross-utilization and a long-standing culture of cooperation among labor groups translate into lower unit labor costs. At Southwest in 4th quarter 2000, total labor charge per available seat mile (Asm) was more than 25% below that of United and American, and 58% less than Us Airways.

Carriers like Southwest have a stupendous cost advantage over network airlines naturally because their workforce generates more production per employee. In a study in 2001, the productivity of Southwest employees was over 45% higher than at American and United, despite the substantially longer flight lengths and larger average aircraft size of these network carriers. Therefore by its relentless chase for lowest labor costs, Southwest is able to really impact its lowest line revenues.

Fuel Costs

Fuel costs is the second-largest charge for airlines after labor and accounts for about 18 percent of the carrier’s operating costs. Airlines that want to preclude huge swings in operating expenses and lowest line profitability choose to hedge fuel prices. If airlines can control the cost of fuel, they can more accurately evaluation budgets and forecast earnings. With growing competition and air tour becoming a commodity business, being contentious on price was key to any airline’s survival and success. It became hard to pass higher fuel costs on to passengers by raising marker prices due to the extremely contentious nature of the industry.

Southwest has been able to successfully implement its fuel hedging strategy to save on fuel expenses in a big way and has the largest hedging position among other carriers. In the second quarter of 2005, Southwest’s unit costs fell by 3.5% despite a 25% growth in jet fuel costs. During Fiscal year 2003, Southwest had much lower fuel charge (0.012 per Asm) compared to the other airlines with the exception of JetBlue as illustrated in exhibit 1 below. In 2005, 85 per cent of the airline’s fuel needs has been hedged at per barrel. World oil prices in August 2005 reached per barrel. In the second quarter of 2005 alone, Southwest achieved fuel savings of 6 million. The state of the commerce also suggests that airlines that are hedged have a contentious advantage over the non-hedging airlines. Southwest announced in 2003 that it would add performance-enhancing Blended Winglets to its current and time to come fleet of Boeing 737-700’s. The visually distinctive Winglets will enhance carrying out by extending the airplane’s range, salvage fuel, lowering engine maintenance costs, and reducing takeoff noise.

Point-to-Point Service

Southwest operates its flight point-to-point service to maximize its operational efficiency and stay cost-effective. Most of its flights are short hauls averaging about 590 miles. It uses the strategy to keep its flights in the air more often and therefore perform best capacity utilization.

Secondary Airports

Southwest flies to secondary/smaller airports in an endeavor to sell out tour delays and therefore contribute exquisite service to its customers. It has led the commerce in on-time performance. Southwest has also been able to trim down its airport operations costs relatively best than its rival airlines.

Consistent aircraft

At the heart of Southwest’s success is its particular aircraft strategy: Its fleet consists exclusively of Boeing 737 jets. Having common fleet significantly simplifies scheduling, operations and flight maintenance. The training costs for pilots, ground crew and mechanics are lower, because there’s only a particular aircraft to learn. Purchasing, provisioning, and other operations are also vastly simplified, thereby lowering costs. Consistent aircraft also enables Southwest to use its pilot crew more efficiently.

E-Ticketing

The idea of ticketless tour was a major advantage to Southwest because it could lower its distribution costs. Southwest became electronic or ticketless back in the mid-1990s, and today they are about 90-95% ticketless. Customers who use prestige cards are eligible for online transactions, and today Southwest.com bookings account for about 65% of total revenue. The Ceo Gary Kelly thinks that this idea would grow added and that he wouldn’t be surprised if e-ticketing accounted for 75% of Southwest’s revenues by end of 2005. In the past, when there was a 10% tour agency commission paid, it used to cost about a booking. But currently, Southwest is paying between 50 cents and per booking for electronic transactions that translate to huge cost savings.

2. Laborer and Labor Relations

Southwest has been extremely regarded for its innovative administration style. It maintains a relentless focus on high-performance relationships and its people-management practices have been the key to its unparalleled success in the airline industry.

Mission Statement

To Our Employees

“We are committed to contribute our Employees a carport work environment with equal occasion for studying and personal growth. Creativity and innovation are encouraged for enhancing the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the assosication that they are unbelievable to share externally with every Southwest Customer.”

The Southwest mission statement shows that the enterprise has a strong commitment to its employees. The enterprise affords the same respect to its employees that is provided to its customers. The Southwest mission statement is unique in that it recognizes the significance of its employees within the broader enterprise strategy, which emphasizes superb customer service and operational efficiency. The employees reciprocate the respect, loyalty and trust that Southwest demonstrates. Southwest employees are known for their loyalty, dedication, attitude and innovation. The employees are the distinguishing factor between Southwest and the rest of the airline industry.

Hiring

Southwest hiring course is unique not only within the airline industry, but also more broadly, and revolves colse to finding habitancy with the right attitude that will thrive in the Southwest culture. farranging procedures are employed to hire for distinct attitude and dedication. Those who do not posses those qualities are weeded out. Colleen Barrett, a non-operational officer at Southwest, states that

“Hiring is critical, because you cannot institutionalize behavior. Instead, you must recognize those habitancy who already practice the behaviors you are finding for. Then you can allow Employees to be themselves and make decisions about customer service based on common sense and their natural inclinations.” 1

Recruiting and interviewing at Southwest is a two-step process. The first step is a group interview, conducted by employees, where transportation skills of possible candidates are evaluated. The next steps in this process are one on one interview, where the candidates’ attitudes and orientation toward serving others are evaluated. These hiring criteria apply to all job functions since all Employees at Southwest play a customer service role. A needful part of Southwest operational strategy is that every job at Southwest is a customer service position, either it directly applies to the customer or either it is internal.

The table below shows that even though Southwest is the most heavily unionized airline, at approximately 80%, that compact negotiations between the unions and Southwest are much shorter in period than of the other major carriers. This shows the ability of relationship that Southwest has with its employees and with the unions that recite them.

Culture

Southwest was created as a separate kind of enterprise and from its beginnings a unique culture was nurtured. In 1990 Colleen Barrett formed the Southwest Culture Committee. This is unique within the commerce and among all large companies. The committee also has a mission statement:

“This group’s goal is to help create the Southwest spirit and culture where needed; to enrich it and make it best where it already exists; and to liven it up in places where it might be “floundering”. In short, this group’s goal is to do “whatever it takes” to create, enhance, and enrich the extra Southwest spirit and culture that has made this such a astonishing Company/Family.”

It is this unique coming to enterprise values that has created a culture that differentiates itself from others. Southwest’s culture is the imagine why it is successful.

3. customer Service

The Mission of Southwest Airlines

The mission of Southwest Airlines is dedication to the top ability of customer service delivered with a sense of warmth, friendliness, personel pride, and enterprise Spirit.

Approach

Herb Kelleher, founder of Southwest, has been quoted as saying that “We’re in the customer service business; we just happen to contribute airline transportation”.2 Award winning customer service is a distinguishing characteristic of Southwest and it is referred to internally as “Positively Outrageous Service”. It means that from the top to lowest every person does anything he or she can to satisfy the customer. This includes Herb Kelleher, who has been known for helping out baggage handlers on Thanksgiving. It is straight through emphasizing the customer and Laborer that Southwest is able to differentiate itself from others in the airline industry. On a more technical level, each Laborer or group within Southwest has his or her own customer. This means that every Laborer ‘serves’ in one way or other despite not being directly complex with the passenger. The mechanic’s customer is the pilot and the caterer’s is the flight attendant.

Results

It can be said that the “Positively Outrageous Service” that is unique to Southwest “is not the corollary of a department, or a program, or a mandate from management. It is not secondary to the product; it is the product.” This coming creates the conditions where Employees are more likely to treat customers in ways that distinguish the enterprise from others. There are numerous accounts of passengers who have received exceptional medicine from Southwest employees.

The inquire that needs to be answered is how Southwest’s customer service is separate and why? Is it common for customers of other airlines to rave about their extra service? The write back is that it is not. While Southwest does not have a monopoly on habitancy who are kind and who are willing to go above and beyond to satisfy a customer, such behavior is nurtured at Southwest to a much greater extent.

It can then be done that the customer service that is possible to Southwest is a part of its culture. This culture is supported straight through Laborer encouragement to do the extra to satisfy the customer. This coming inspires habitancy who would ordinarily only on occasion go out of their way to help someone, to become consistent performers that offer exceptional service all the time. Southwest employees are what differentiate its customer service from the other airlines.

4. Technology

Southwest utilizes technology in many ways to fulfill its enterprise objectives and assert its sufficient operations. according to its Ceo, technology equals productivity. Launched in 1996, ticketless tour was first introduced by Southwest. On May 1st 2000, Southwest Airlines introduces “Swabiz,” a portal that assists enterprise tour managers in booking and tracking trips made straight through its web site [http://www.southwest.com]. There are many new technology initiatives being undertaken currently and some are in the pipeline.

Bar codes in Boarding Passes

Southwest Airlines has invested million During the past three years to standardize corporate and terminal operations on about 10,000 Dell OptiPlex desktop and Latitude notebook computers according to its enterprise executives. Southwest wanted to replace its well known, brightly colored plastic boarding passes with an electronic theory with bar-code paper boarding passes. So it installed about 350 touch screen marker readers powered by Dell OptiPlex desktops. The bar code gives Southwest more information to automatically reconcile the amount of boarding passes with the amount of passengers that really board the plane.

Although the technology will help Southwest Airlines remain sufficient by consolidating passenger information for the company’s 3,000 daily flights, there were concerns it could lengthen the time to get travelers on board. However it was found that scanning each bar code on the boarding passes didn’t growth or shorten boarding schedules, but it did take minutes from menagerial processes, such as finding up customer records. The new paper bar code theory is giving Southwest marker agents the ability to match a customer article within having to scroll straight through and log into multiple software screens. The process is much more automated. Once the bar code on the boarding pass is scanned at the terminal gate it checks off the person from the passenger list in real time.

The old process was hand-operated that complex finding the information, scrolling straight through any software screens from reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The enterprise is in the process of replacing customer service back-office tool at airports together with at its headquarters in Dallas.

Software Upgrades

Software applications, such as those used by clerks to check in passengers, are being replaced. Southwest Airlines’ internally written “Airport Application Suite” is unbelievable to rollout next year as the enterprise transitions from green screens to Window-based user interface. Similar to Wal-Mart shop Inc., Southwest Airlines believes in developing in-house the software that runs its operations. The enterprise uses very wee off-the-shelf software. There are between 75 and 100 projects in the works each year supported by approximately 900 It employees.

Rfid

Radio frequency identification technology, a convenient alternative to bar-coding for luggage identification, is also on Southwest’s radar. It plans to test Rfid technology sometime in 2006. Even though, Southwest is playing a wee catch-up with other airlines such as Air Tran, Alaska and Champion Airlines, in many cases they are able leapfrog to more sophisticated applications really having waited longer.

Challenges:

Southwest has emerged very successful, despite the most troubled times in the airline market. However, it faces new challenges in the face of expanding competition from other low fare airlines such as JetBlue, Ata airlines, America West.

Reserved Seating

Due to expanding safety guidelines since September 2001, Southwest would need to prepare for assigned (reserved) seating to track its in-flight passengers. This convert will involve large technology investments and may impact its gate operations negatively since the current way of unassigned seating has helped in quick gate turnarounds.

Passenger Demand

The keep-it-simple doctrine has served Southwest well. But as its own enterprise grows and grows more complex, with plans to purchase dozens of new aircraft and an unbelievable upsurge in passenger traffic to about 80 million boarding’s a year, the simplicity strategy that has been reflected in the airline’s It doctrine is evolving. The Cio Tom Nealon says that “It’s time to adapt our enterprise processes for efficiency. As our airline scales for us to contribute the same kind of high-touch customer service, we have to automate a lot of things we’ve been able to do without technology previously. The challenge is doing that without conceding the customer touch.” Southwest is also aggressively pursuing customer relationship administration (Crm) techniques and has applications to get comprehension into customer’s wants and dislikes. according to an interview with its Ceo Gary Keller, Southwest has its focus on enhancing in two areas – customer’s airport taste and in-flight experience.

In-Flight Entertainment

In an farranging endeavor to enhance customer’s in-flight experience, in-flight entertainment is something that Southwest is currently evaluating and which JetBlue has been very prosperous at already because of its introduction in its long-haul flights. In comparison, Southwest has 415 airplanes to consider and that represents an investment decision at a whole new dimension. Additionally, Southwest has to consider how things may fit into their environment. At this point, 60% of its service is still very short haul. Southwest needs to be mindful of the fact that a distinct coming that has been prosperous for its competitor may not be necessarily work to its advantage.

Summary:

Southwest has long been regarded as a benchmark in its commerce for operational excellence. Southwest Airlines is a fine example of a enterprise that is committed to its core competencies – sufficient operations to drive its low cost structure, outstanding delivery of customer service and innovative Hr administration practices. We hope this paper provided a good comprehension into Southwest operations, as part of its farranging strategy, to perform success and gain contentious advantage.

References:

1. [http://www.southwest.com] (Southwest airlines legal web site)

2. “Southwest keeps it simple” – Air converyance World, April 2005, Pg 36

3. “Around the World on (or So): How High Can discount Airlines Fly?“ Strategy administration – Knowledge@ Wharton Newsletter Oct 5, 2005

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

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

6. “Southwest Airlines: High Tech, Low Costs” – Eweek.com, April 2005

7. “Jet Fuel Hedging Strategies: Options available for Airlines and a discover of commerce Practices” – Kellogg School of administration explore Paper, Spring 2004

8. Winning Behavior: What the Smartest, Most prosperous fellowships Do Differently, Terry R. Bacon and David G. Pugh, 2003

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

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

11. Labor compact Negotiations in the Airline Industry, Monthly Labor Review, July 2003, page 24

Southwest Airlines Operations – A Strategic Perspective