You are on page 1of 2

1. Is there anything that you find particularly impressive about Southwest Airlines?

Historically airline industry has been a losing endeavor, littered with big glorious bankrupt companies such as Pan am and TWA. This industry has been straddled with high capital and labor costs and simultaneously exposed to weather vagaries and wild oil price fluctuations compounded by random terrorist attacks and threats. Facing these tremendous odds stacked against, Southwest Airlines not only survived but prospered and rewarded its share holders handsomely. The will to do well and successfully grow profitably in a difficult industry year after year with no frills, low cost and no fanfare has been most impressive. Southwest has used varieties of management strategies to achieve its goals. It is best exemplified by growth its share of US domestic passengers from 17% in 1998 to 23% in 2008. The 23% share is the highest among major airlines and Southwest leads the industry with its passenger growth of 6.5% at a time when most of the other airlines passenger share is declining. Southwest has 18.65% annual growth in passengers if we include its start in 1971 when Southwest flew only 250 passengers daily. In period of 37 some years Southwests fleet has grown from 3 airplanes to 520, an impressive 14.95% annual growth. Southwest is USs most largest and successful low-fare, high frequency, point to point carrier providing its services to 101 Million annual satisfied customers in 2008. Also Southwests revenue is sixth largest, ranks lower, but it is because of the low price structure it follows. In 2008 it was generating $97 per passenger, the lowest among major airlines, and mostly because Southwest is very competitive price wise and the $97 per passenger figure shows that.

2. What grade would you give Southwest management for the job it has done in crafting the companys strategy? What is it that you like or dislike about the strategy? Does Southwest have a winning strategy? I will give A+ to Southwest Management for having such a remarkable run since 1971 and providing real competitive advantage for Southwest. The Southwest Management is in constant interaction with employees and customers in process of figuring out action plans. The management visits maintenance facility and talks exhaustively to flight attendants regularly. The management prefers to be among its troops instead of being in the head-quarters. The CEO attends flight attendants graduating ceremonies and helps load bags in airplanes on busy days. These actions allow the management to win employees trust, and the employees are whole heartedly working in same direction as the management. The management focuses on fiscal conservatism, a strong balance sheet, and zealously pays attention to bottom-line profitability; traits much required to survive in ultra competitive industry where margin of error is very low. As per the management Reality is chaotic; planning is ordered and logical. The meticulous nit-picking that goes on in most strategic planning process creates a mental straitjacket that becomes disabling in an industry where things change radically from one day to the next. The emphasis is to create dynamism, to think ahead and to have contingency plans instead. The game plan is to be nimble and ready to act when it appears that the future holds significant risks or new conditions suddenly appears and demands prompt responses. Southwest tries to win trust of employees first versus customers. The concept is if employees are treated right, then customers will be treated same. The company has also created a network of contacts to learn what was happening with employees and their families. A great time is devoted to learn from employees about ideas to improve operations and management procedures. The key 4 factors to Southwests recipe for success were: hire great people, treat them like family; care for customers warmly and personally, like guests; keep fare and operating costs lowest by being safe, efficient, and operationally excellent; and stay prepared for bad times with strong balance sheet, lots of cash, and a stout fuel hedge. The management has established four key success factors to be standout performer. These KSFs were to be the best place to work; to be the safest, most efficient, and most reliable airline in the world; to offer customers convenient flight schedules; to offer customers the best overall travel experience; and to do all the things that maintains a low cost structure and the ability to offer low fares. The goal is to live the Southwest way, which is to have a warrior spirit, a servants heart and a fun-Luving attitude. The most likable thing about Southwest management philosophy is the way it goes way out to win employees mind and heart. The company needs to excel in operations; and happy and satisfied employees help much in achieving this distinction. The very basic thing about airline industry is humans. It is in business of transporting live humans from point A to point B. And from the time of buying ticket and making actual journey the humans or customers interact with the company staff and human interaction become paramount. If the staff is happy and satisfied, the customers get the vibes to trust the staff or indirectly the company. Southwest do have winnable strategy since it is creating winners in all its employees constantly. The only negative thing I see in Southwest management is its insistence on only flying one particular type of aircraft. This curtails Southwests capability to expand into more lucrative long distance international travel market. In this market bigger long flying

aircrafts other than Boeing 737 are required. My suggestion will be that Southwest look into applying same standardized management techniques with one bigger aircraft to get into international market. 3. What are the key policies, procedures, operating practices, and core values underlying Southwests efforts to implement and execute its low-cost/no frills strategy? Southwest zealously pursuits low operating costs and over the years instituted a number of practices to keep its costs below those of its rival carriers. It operates only one type of aircraft, Boeing 737, to minimize the size of spare part inventories, to simplify the training of maintenance and repair personnel, to improve the proficiency and speed with which maintenance routines could be done, and to simplify the task of scheduling flights. Southwest introduced ticketless travel and was first to sell flight tickets directly to travelers from its web-site, avoiding paying extra overhead of travel agent commissions. The company did not fly from congested airports, focusing instead on servicing airports near major cities and in medium sized cities. This step helps with better-than-average on-time performance and reduced fuel costs associated with planes sitting on tarmac or air waiting to fly or land. At smaller airports Southwest avoids paying higher landing fees and terminal gate costs compared to high-traffic airports. Southwest uses point to point scheduling. This scheduling is more cost-efficient than the hub and spoke systems used by its rivals. Using point to point Southwest is able to turn around its airplanes in 25 minutes versus 2 hours for hub and spoke system. Passengers using hub and spoke systems might have to go through many hubs to reach destinations, and since each hub takes considerable amount, the passengers will easily be dissatisfied on hub and spoke route. The crew used by Southwest is multi talented and hence Southwest does not need to keep specialized staff to do certain things. Southwest maintains only one class of passengers and offers no in flight meals. Southwest was one of the first airlines to hedge oil prices when they were low. This saved company tons of money when oil prices tripled in sort span and be competitive; where other airlines raced to raise money in form of luggage check in and other fees . These are the few things Southwest does to keep costs down and sell air tickets at lowest possible prices. Southwest follows a low cost/low-price/no-frills strategy. Its low fares allowed many customers to fly for the first time. Southwest also places less restriction on its tickets and follows uniform less confusing pricing policy. Southwest believes in economies of scale and proved many times that revenue gains from increased ticket sales and the volume of traffic compensate heavily for the revenue erosion from low fares. Southwest carefully plans its route system so that it offer flights between pair of cities 150 to 700 miles apart where there was enough traffic to make sizable daily flights possible. Southwests frequent flier program is also very innovative and allows customers to earn rapid rewards. The entire staff of Southwest puts their cherry and happy faces while interacting with their customers. The idea is that sending friendly, fun-loving sprit to customers was the key to competitive advantage and company emphasizes customer commitment in its mission. Southwest followed a policy of gradual expansion and preferred to saturate the market for daily flights to the cities it currently served before moving to new cities. Another policy Southwest adapted was that it moved in cities which rivals vacated in the belief that the low fares will generate enough volumes to generate profit. The company also pays special attention on safety, high-quality maintenance, and reliable operations. It comes easy for the company because it operates only one type of aircraft. The company leads in operating costs in the industry with 13.85 cents per revenue passenger mile. The savings are passed to customers in low ticket prices. And its cost growth is also lowest even when it started lowest. Last but least having strong culture of service and low costs helps company to maintain and win market share. As discussed earlier Southwest focuses a lot on employees first as they hold the keys to success on most of the things company does. The philosophy is simple Keep employees happy-then they will keep customers happy; a very critical component in winning mind and heart of customers and repeat business. Southwest considers its people as its greatest asset and hence it devotes lot of time and energy to hire right people with winning attitudes. The company provides nurturing and supportive work environment that allows its employees to be creative, have fun, and make a positive difference. This sense of ownership and enhanced job satisfaction keeps Southwests culture and spirit alive and allows Southwest to have one winning season after another forever.

4. What grade would you give Southwest management for the job it has done in implementing and executing the companys strategy? Which of Southwests strategy execution approaches and operating practices do you believe have been most crucial in accounting for the success that Southwest has enjoyed in executing its strategy? Are the any policies, procedures, and operating approaches at Southwest that you disapprove of or that are not working well? The Southwest management has done its job well in implementing and executing the companys strategy for last 37 years. The company started with three aircrafts and for the last 37 years the same basic management principles company have created immense success. The key aspect of Southwest strategy is to run same aircraft model in smaller airports. This strategy easily copied but it has not given much success to other companies which tried same techniques. The other main strategy over shadowing these two is human resource development. Investment in human resources has been most crucial in accounting for the success Southwest has enjoyed. The unique culture Southwest has fosters and grows its employees so important for its success. I feel that if Southwest applies same principles on long distance international travel using same management techniques it can reap handsome rewards for the shareholders and can grow company at faster rates. The US market is very saturated with well trenched players and Southwest needs to think ahead, as many of the competitors are trying to copy same Southwest management principles but not with much success. Another concern I have is Load factor is lower compared to industry average. For 2007 it was 72.6 compared to 77.2 for the industry. It seems to me that either there are underutilized routes or many customers still have not heard about the Southwest low cost offerings. Management needs to take actions such as more advertising and sales promotions to increase the load factor. Other than these two concerns, I give kudos to Southwest management on their impressive run and success.