| Background:Southwest Airlines is the largest | | | | even though Southwest is the most heavily |
| airline measured by number of passengers | | | | unionized airline, at approximately 80%, that |
| carried each year within the United States. | | | | contract negotiations between the unions and |
| It is also known as a 'discount airline' | | | | Southwest are much shorter in duration than |
| compared with its large rivals in the | | | | of the other major carriers. This shows the |
| industry. Rollin King and Herb Kelleher | | | | quality of relationship that Southwest has |
| founded Southwest Airlines on June 18, 1971. | | | | with its employees and with the unions that |
| Its first flights were from Love Field in | | | | represent them.CultureSouthwest was created |
| Dallas to Houston and San Antonio, short hops | | | | as a different kind of company and from its |
| with no-frills service and a simple fare | | | | beginnings a unique culture was nurtured. In |
| structure. The airline began with one simple | | | | 1990 Colleen Barrett formed the Southwest |
| strategy: "If you get your passengers to | | | | Culture Committee. This is unique within the |
| their destinations when they want to get | | | | industry and among all large companies. The |
| there, on time, at the lowest possible fares, | | | | committee also has a mission statement:"This |
| and make darn sure they have a good time | | | | group's goal is to help create the Southwest |
| doing it, people will fly your airline." This | | | | spirit and culture where needed; to enrich it |
| approach has been the key to Southwest's | | | | and make it better where it already exists; |
| success. Currently, Southwest serves about 60 | | | | and to liven it up in places where it might |
| cities (in 31 states) with 71 million total | | | | be "floundering". In short, this group's goal |
| passengers carried (in 2004) and with a total | | | | is to do "whatever it takes" to create, |
| operating revenue of $6.5 billion. Southwest | | | | enhance, and enrich the special Southwest |
| is traded publicly under the symbol "LUV" on | | | | spirit and culture that has made this such a |
| NYSE.Facts:* The first major airline to fly a | | | | wonderful Company/Family."It is this unique |
| single type of aircraft (Boeing 737s)* The | | | | approach to company values that has created a |
| first major airline to offer ticketless | | | | culture that differentiates itself from |
| travel system wide including a frequent flier | | | | others. Southwest's culture is the reason |
| program based on number of trips and not | | | | why it is successful.3. Customer ServiceThe |
| number of miles flown.* The first airline to | | | | Mission of Southwest Airlines |
| offer a profit-sharing program to its | | | | |
| Employees (instituted in 1973).* The first | | | | The mission of Southwest Airlines is |
| major airline to develop a Web site and offer | | | | dedication to the highest quality of Customer |
| online booking. In 2001, about 40 percent | | | | Service delivered with a sense of warmth, |
| ($2.1 billion) of its passenger revenue was | | | | friendliness, individual pride, and Company |
| generated through online bookings at | | | | Spirit.ApproachHerb Kelleher, founder of |
| Southwest's cost per booking via the Internet | | | | Southwest, has been quoted as saying that |
| is about $1, compared to a cost per booking | | | | "We're in the Customer service business; we |
| through travel agents of $6 to $8.Key | | | | just happen to provide airline |
| competitive advantages:* Low Operational | | | | transportation".2 Award winning customer |
| costs / High Operational Efficiency* Award | | | | service is a distinguishing characteristic of |
| winning customer service* Human Resource | | | | Southwest and it is referred to internally as |
| practices / Work cultureOperations Analysis - | | | | "Positively Outrageous Service". It means |
| Competitive Dimensions:Southwest clearly has | | | | that from the top to bottom everyone does |
| a distinct advantage compared to other | | | | whatever he or she can to satisfy the |
| airlines in the industry by executing an | | | | customer. This includes Herb Kelleher, who |
| effective and efficient operations strategy | | | | has been known for helping out baggage |
| that forms an important pillar of its overall | | | | handlers on Thanksgiving. It is through |
| corporate strategy. Given below are some | | | | emphasizing the customer and employee that |
| competitive dimensions that will be studied | | | | Southwest is able to differentiate itself |
| in this paper.1. Operational Costs and | | | | from others in the airline industry. On a |
| Efficiency2. Customer Service3. Employee | | | | more technical level, each employee or group |
| Labor Relations4. Technology1. Operational | | | | within Southwest has his or her own customer. |
| Costs and EfficiencyAfter all, the airline | | | | This means that every employee 'serves' in |
| industry overall is in shambles. But, how | | | | one way or another despite not being directly |
| does Southwest Airlines stay profitable? | | | | involved with the passenger. The mechanic's |
| Southwest Airlines has the lowest costs and | | | | customer is the pilot and the caterer's is |
| strongest balance sheet in its industry, | | | | the flight attendant.ResultsIt can be said |
| according to its chairman Kelleher. The two | | | | that the "Positively Outrageous Service" that |
| biggest operating costs for any airline are - | | | | is unique to Southwest "is not the result of |
| labor costs (approx 40%) followed by fuel | | | | a department, or a program, or a mandate from |
| costs (approx 18%). Some other ways that | | | | management. It is not secondary to the |
| Southwest is able to keep their operational | | | | product; it is the product." This approach |
| costs low is - flying point-to-point routes, | | | | creates the conditions where Employees are |
| choosing secondary (smaller) airports, | | | | more likely to treat customers in ways that |
| carrying consistent aircrafts, maintaining | | | | distinguish the company from others. There |
| high aircraft utilization, encouraging | | | | are numerous accounts of passengers who have |
| e-ticketing etc.Labor CostsThe labor costs | | | | received exceptional treatment from Southwest |
| for Southwest typically accounts for about | | | | employees.The question that needs to be |
| 37% of its operating costs. Perhaps the most | | | | answered is how Southwest's customer service |
| critical element of the successful low-fare | | | | is different and why? Is it common for |
| airline business model is achieving | | | | customers of other airlines to rave about |
| significantly higher labor productivity. | | | | their special service? The answer is that it |
| According to a recent HBS Case Study, | | | | is not. While Southwest does not have a |
| southwest airlines is the "most heavily | | | | monopoly on people who are kind and who are |
| unionized" US airline (about 81% of its | | | | willing to go above and beyond to satisfy a |
| employees belong to an union) and its salary | | | | customer, such behavior is nurtured at |
| rates are considered to be at or above | | | | Southwest to a much greater extent.It can |
| average compared to the US airline industry. | | | | then be concluded that the customer service |
| The low-fare carrier labor advantage is in | | | | that is inherent to Southwest is a part of |
| much more flexible work rules that allow | | | | its culture. This culture is supported |
| cross-utilization of virtually all employees | | | | through employee encouragement to do the |
| (except where disallowed by licensing and | | | | extra to satisfy the customer. This approach |
| safety standards). Such cross-utilization and | | | | inspires people who would ordinarily only on |
| a long-standing culture of cooperation among | | | | occasion go out of their way to help someone, |
| labor groups translate into lower unit labor | | | | to become consistent performers that offer |
| costs. At Southwest in 4th quarter 2000, | | | | exceptional service all the time. Southwest |
| total labor expense per available seat mile | | | | employees are what differentiate its customer |
| (ASM) was more than 25% below that of United | | | | service from the other airlines.4. |
| and American, and 58% less than US | | | | TechnologySouthwest utilizes technology in |
| Airways.Carriers like Southwest have a | | | | many ways to fulfill its business objectives |
| tremendous cost advantage over network | | | | and maintain its efficient operations. |
| airlines simply because their workforce | | | | According to its CEO, technology equals |
| generates more output per employee. In a | | | | productivity. Launched in 1996, ticketless |
| study in 2001, the productivity of Southwest | | | | travel was first introduced by Southwest. On |
| employees was over 45% higher than at | | | | May 1st 2000, Southwest Airlines introduces |
| American and United, despite the | | | | "SWABIZ," a portal that assists company |
| substantially longer flight lengths and | | | | travel managers in booking and tracking trips |
| larger average aircraft size of these network | | | | made through its web site There are many new |
| carriers. Therefore by its relentless pursuit | | | | technology initiatives being undertaken |
| for lowest labor costs, Southwest is able to | | | | currently and some are in the pipeline.Bar |
| positively impact its bottom line | | | | codes in Boarding PassesSouthwest Airlines |
| revenues.Fuel CostsFuel costs is the | | | | has invested $12 million during the past |
| second-largest expense for airlines after | | | | three years to standardize corporate and |
| labor and accounts for about 18 percent of | | | | terminal operations on about 10,000 Dell |
| the carrier's operating costs. Airlines that | | | | OptiPlex desktop and Latitude notebook |
| want to prevent huge swings in operating | | | | computers according to its company |
| expenses and bottom line profitability choose | | | | executives. Southwest wanted to replace its |
| to hedge fuel prices. If airlines can control | | | | well known, brightly colored plastic boarding |
| the cost of fuel, they can more accurately | | | | passes with an electronic system with |
| estimate budgets and forecast earnings. With | | | | bar-code paper boarding passes. So it |
| growing competition and air travel becoming a | | | | installed about 350 touch screen ticket |
| commodity business, being competitive on | | | | readers powered by Dell OptiPlex desktops. |
| price was key to any airline's survival and | | | | The bar code gives Southwest more information |
| success. It became hard to pass higher fuel | | | | to automatically reconcile the number of |
| costs on to passengers by raising ticket | | | | boarding passes with the number of passengers |
| prices due to the highly competitive nature | | | | that actually board the plane.Although the |
| of the industry.Southwest has been able to | | | | technology will help Southwest Airlines |
| successfully implement its fuel hedging | | | | remain efficient by consolidating passenger |
| strategy to save on fuel expenses in a big | | | | information for the company's 3,000 daily |
| way and has the largest hedging position | | | | flights, there were concerns it could |
| among other carriers. In the second quarter | | | | lengthen the time to get travelers on board. |
| of 2005, Southwest's unit costs fell by 3.5% | | | | However it was found that scanning each bar |
| despite a 25% increase in jet fuel costs. | | | | code on the boarding passes didn't increase |
| During Fiscal year 2003, Southwest had much | | | | or shorten boarding schedules, but it did |
| lower fuel expense (0.012 per ASM) compared | | | | take minutes from administrative processes, |
| to the other airlines with the exception of | | | | such as looking up customer records. The new |
| JetBlue as illustrated in exhibit 1 below. In | | | | paper bar code system is giving Southwest |
| 2005, 85 per cent of the airline's fuel needs | | | | ticket agents the ability to match a customer |
| has been hedged at $26 per barrel. World oil | | | | record within having to scroll through and |
| prices in August 2005 reached $68 per barrel. | | | | log into multiple software screens. The |
| In the second quarter of 2005 alone, | | | | process is much more automated. Once the bar |
| Southwest achieved fuel savings of $196 | | | | code on the boarding pass is scanned at the |
| million. The state of the industry also | | | | terminal gate it checks off the person from |
| suggests that airlines that are hedged have a | | | | the passenger list in real time.The old |
| competitive advantage over the non-hedging | | | | process was manual that involved finding the |
| airlines. Southwest announced in 2003 that it | | | | information, scrolling through several |
| would add performance-enhancing Blended | | | | software screens from reservations to |
| Winglets to its current and future fleet of | | | | check-in to boarding. The bar code hardware |
| Boeing 737-700's. The visually distinctive | | | | to scan the boarding passes has been |
| Winglets will improve performance by | | | | deployed. The company is in the process of |
| extending the airplane's range, saving fuel, | | | | replacing customer service back-office |
| lowering engine maintenance costs, and | | | | equipment at airports including at its |
| reducing takeoff noise.Point-to-Point | | | | headquarters in Dallas.Software |
| ServiceSouthwest operates its flight | | | | UpgradesSoftware applications, such as those |
| point-to-point service to maximize its | | | | used by clerks to check in passengers, are |
| operational efficiency and stay | | | | being replaced. Southwest Airlines' |
| cost-effective. Most of its flights are short | | | | internally written "Airport Application |
| hauls averaging about 590 miles. It uses the | | | | Suite" is expected to rollout next year as |
| strategy to keep its flights in the air more | | | | the company transitions from green screens to |
| often and therefore achieve better capacity | | | | Window-based user interface. Similar to |
| utilization.Secondary AirportsSouthwest flies | | | | Wal-Mart Stores Inc., Southwest Airlines |
| to secondary/smaller airports in an effort to | | | | believes in developing in-house the software |
| reduce travel delays and therefore provide | | | | that runs its operations. The company uses |
| excellent service to its customers. It has | | | | very little off-the-shelf software. There are |
| led the industry in on-time performance. | | | | between 75 and 100 projects in the works each |
| Southwest has also been able to trim down its | | | | year supported by approximately 900 IT |
| airport operations costs relatively better | | | | employees.RFIDRadio frequency identification |
| than its rival airlines.Consistent | | | | technology, a favorable alternative to |
| aircraftsAt the heart of Southwest's success | | | | bar-coding for luggage identification, is |
| is its single aircraft strategy: Its fleet | | | | also on Southwest's radar. It plans to test |
| consists exclusively of Boeing 737 jets. | | | | RFID technology sometime in 2006. Even |
| Having common fleet significantly simplifies | | | | though, Southwest is playing a little |
| scheduling, operations and flight | | | | catch-up with other airlines such as Air |
| maintenance. The training costs for pilots, | | | | Tran, Alaska and Champion Airlines, in many |
| ground crew and mechanics are lower, because | | | | cases they are able leapfrog to more |
| there's only a single aircraft to learn. | | | | sophisticated applications easily having |
| Purchasing, provisioning, and other | | | | waited longer.Challenges:Southwest has |
| operations are also vastly simplified, | | | | emerged very successful, despite the most |
| thereby lowering costs. Consistent aircrafts | | | | troubled times in the airline market. |
| also enables Southwest to utilize its pilot | | | | However, it faces new challenges in the face |
| crew more efficiently.E-TicketingThe idea of | | | | of increasing competition from other low fare |
| ticketless travel was a major advantage to | | | | airlines such as JetBlue, ATA airlines, |
| Southwest because it could lower its | | | | America West.Reserved SeatingDue to |
| distribution costs. Southwest became | | | | increasing security guidelines since |
| electronic or ticketless back in the | | | | September 2001, Southwest would need to |
| mid-1990s, and today they are about 90-95% | | | | prepare for assigned (reserved) seating to |
| ticketless. Customers who use credit cards | | | | track its in-flight passengers. This change |
| are eligible for online transactions, and | | | | will involve large technology investments and |
| today bookings account for about 65% of total | | | | may impact its gate operations negatively |
| revenue. The CEO Gary Kelly thinks that this | | | | since the current way of unassigned seating |
| idea would grow further and that he wouldn't | | | | has helped in quick gate |
| be surprised if e-ticketing accounted for 75% | | | | turnarounds.Passenger DemandThe |
| of Southwest's revenues by end of 2005. In | | | | keep-it-simple philosophy has served |
| the past, when there was a 10% travel agency | | | | Southwest well. But as its own business grows |
| commission paid, it used to cost about $8 a | | | | and grows more complex, with plans to |
| booking. But currently, Southwest is paying | | | | purchase dozens of new aircraft and an |
| between 50 cents and $1 per booking for | | | | expected upsurge in passenger traffic to |
| electronic transactions that translate to | | | | about 80 million boarding's a year, the |
| huge cost savings.2. Employee and Labor | | | | simplicity strategy that has been reflected |
| RelationsSouthwest has been highly regarded | | | | in the airline's IT philosophy is evolving. |
| for its innovative management style. It | | | | The CIO Tom Nealon says that "It's time to |
| maintains a relentless focus on | | | | adapt our business processes for efficiency. |
| high-performance relationships and its | | | | As our airline scales for us to provide the |
| people-management practices have been the key | | | | same kind of high-touch customer service, we |
| to its unparalleled success in the airline | | | | have to automate a lot of things we've been |
| industry.Mission StatementTo Our Employees | | | | able to do without technology previously. The |
| | | | challenge is doing that without conceding the |
| "We are committed to provide our Employees a | | | | customer touch." Southwest is also |
| stable work environment with equal | | | | aggressively pursuing customer relationship |
| opportunity for learning and personal growth. | | | | management (CRM) techniques and has |
| Creativity and innovation are encouraged for | | | | applications to get insight into customer's |
| improving the effectiveness of Southwest | | | | wants and dislikes. According to an interview |
| Airlines. Above all, Employees will be | | | | with its CEO Gary Keller, Southwest has its |
| provided the same concern, respect, and | | | | focus on improving in two areas - customer's |
| caring attitude within the organization that | | | | airport experience and in-flight |
| they are expected to share externally with | | | | experience.In-Flight EntertainmentIn an |
| every Southwest Customer."The Southwest | | | | overall effort to improve customer's |
| mission statement shows that the company has | | | | in-flight experience, in-flight entertainment |
| a strong commitment to its employees. The | | | | is something that Southwest is currently |
| company affords the same respect to its | | | | evaluating and which JetBlue has been very |
| employees that is provided to its customers. | | | | successful at already because of its |
| The Southwest mission statement is unique in | | | | introduction in its long-haul flights. In |
| that it recognizes the importance of its | | | | comparison, Southwest has 415 airplanes to |
| employees within the broader business | | | | consider and that represents an investment |
| strategy, which emphasizes superb customer | | | | decision at a whole new dimension. |
| service and operational efficiency. The | | | | Additionally, Southwest has to consider how |
| employees reciprocate the respect, loyalty | | | | things may fit into their environment. At |
| and trust that Southwest demonstrates. | | | | this point, 60% of its service is still very |
| Southwest employees are known for their | | | | short haul. Southwest needs to be mindful of |
| loyalty, dedication, attitude and innovation. | | | | the fact that a certain approach that has |
| The employees are the distinguishing factor | | | | been successful for its competitor may not be |
| between Southwest and the rest of the airline | | | | necessarily work to its |
| industry.HiringSouthwest hiring policy is | | | | advantage.Summary:Southwest has long been |
| unique not only within the airline industry, | | | | regarded as a benchmark in its industry for |
| but also more broadly, and revolves around | | | | operational excellence. Southwest Airlines is |
| finding people with the right attitude that | | | | a fine example of a company that is committed |
| will thrive in the Southwest culture. | | | | to its core competencies - efficient |
| Extensive procedures are employed to hire for | | | | operations to drive its low cost structure, |
| positive attitude and dedication. Those who | | | | outstanding delivery of customer service and |
| do not posses those qualities are weeded out. | | | | innovative HR management practices. We hope |
| Colleen Barrett, a non-operational officer | | | | this paper provided a good insight into |
| at Southwest, states that"Hiring is critical, | | | | Southwest operations, as part of its overall |
| because you cannot institutionalize behavior. | | | | strategy, to achieve success and gain |
| Instead, you must identify those people who | | | | competitive advantage.References:1. |
| already practice the behaviors you are | | | | (Southwest airlines official web site)2. |
| looking for. Then you can allow Employees to | | | | "Southwest keeps it simple" - Air Transport |
| be themselves and make decisions about | | | | World, April 2005, Pg 363. "Around the World |
| Customer service based on common sense and | | | | on $48 (or So): How High Can Discount |
| their natural inclinations." 1Recruiting and | | | | Airlines Fly?" Strategy Management - |
| interviewing at Southwest is a two-step | | | | Knowledge@ Wharton Newsletter Oct 5, 20054. |
| process. The first step is a group interview, | | | | TechWeb - "Southwest's Strategy for Success: |
| conducted by employees, where communication | | | | Consolidate!" - Oracle Magazine (Sept/Oct |
| skills of potential candidates are evaluated. | | | | 2004 edition) "Southwest Airlines: High |
| The next steps in this process are one on one | | | | Tech, Low Costs" - Eweek.com, April 20057. |
| interview, where the candidates' attitudes | | | | "Jet Fuel Hedging Strategies: Options |
| and orientation toward serving others are | | | | Available for Airlines and a Survey of |
| evaluated. These hiring criteria apply to all | | | | Industry Practices" - Kellogg School of |
| job functions since all Employees at | | | | Management Research Paper, Spring 20048. |
| Southwest play a customer service role. A | | | | Winning Behavior: What the Smartest, Most |
| critical part of Southwest operational | | | | Successful Companies Do Differently, Terry R. |
| strategy is that every job at Southwest is a | | | | Bacon and David G. Pugh, 20039. Time |
| customer service position, whether it | | | | Magazine, Oct 28th 2002 issue, Vol. 160 Issue |
| directly applies to the customer or whether | | | | 18, p. 4510. "Wings Of Change",Information |
| it is internal.The table below shows that | | | | Week, March 28, 2005,11. |