When the airline industry getting mentioned negative thoughts and emotions rush to peoples’ mind. 9/11 was not too long ago causing a huge drop in revenues and putting many large companies to the brink of bankruptcy. High ticket prices as well as a plethora of additional fees continue to plague frequent air travelers. However amongst all the chaos and disarray, one company continued to show profits and wow its customers. Every year since 1973 Southwest Airlines has continued to be profitable where others have lost millions on dollars.
This is due to the genius operating methods put into place that have stressed Southwest’s goals of having low operating costs, low fares, and customer-pleasing service. The formation of Southwest Airlines did not take place over night. It was a process that gradually expanded by having a solid core that. In the late sixty’s a San Antonio entrepreneur had a dream and sought out the man who would make this work: Herb Kelleher. Kelleher was a successful lawyer based in the San Antonio area. The original idea that started Southwest was to service business people with a low-cost/low-fare between the major metropolitan cities in Texas.
Kelleher was immediately on board with this idea and went to work to get the company going. He fought many legal battles from big rivals to block the potential new entrant; however in 1971 two court appeals were won granting Southwest entrance to the Texas market. Immediately they looked outside for financing and found Lamar Muse, who was brought in as CEO. Once Southwest launched, their first move was to undercut the competitors in price to attract customers. However they still were attracting few customers. The marketing team then went to work coming up with new ideas to keep this company in the air.
From stewardesses in high-heeled boots, free alcoholic beverages on certain, incredible deals on tickets, and a loveable tag line Southwest caught the publics’ attention. On the operational side, the ground crew came up with a routine to unload the plan in record time compared to the competition. Finally with the expansion into the Houston Hobby Airport rather than the Intercontinental Airport they were able to attract many business customers due to the proximity to the city. All this paid off and resulted in the first every annual profit in 1973. Throughout the rest of the 1970’s Southwest found itself involved in an array of legal battles.
The competition wanted this fast growing threat out before they would be considered a real competitor. From getting the airline to change hubs to denying Southwest access to smaller regions, the complaint rose. And the man to step in the pilot’s seat was Herb Kelleher. Kelleher fought everything that was thrown against him with determination and eventually took over as CEO in 1981. Kelleher was a very unique CEO due to the fact he was very involved with the daily operations of airline. He made a point of visiting with maintenance crews, attendants, and pilots out in the field.
He was a very “chill” CEO known for his love of whiskey, fine cigarettes, pranks, and Hawaiian shirts which earned him the nick name the “clown prince”. Kelleher strongly believed in the principle that employees came first not customers. By treating the employees right they in turn would treat the customers with just as much respect. This attitude instilled by Kelleher was one of the building blocks which made Southwest the giant in the sky that it is today. From the emergence of Southwest they have stressed the low-cost/low-price strategy that has been implemented over the years. This made airfare accessible to a good portion of the U.
S population. They went to extreme measures to make sure that they were the best cost provider in the industry. Their rivals instituted a series of add-on-fees such as fuel surcharges, bag fees, fees for changing flights, and fees for in flight snacks to compensate for the skyrocketing price of jet fuel (which increased to over 25% of operating expenses over the early 2000’s). Southwest took a different approach to ensure that they would stick to their all inclusive fare price. They took a sharp advertising campaign with “Bags Fly Free” to make it clear they were sticking to their methods.
Southwest took extra efforts to make sure their airline stood out from the rest of the pack. They advertised far more heavily than any other U. S carrier. They came up with catchy slogans like “Austin Auften”, “Phoenix Phrequently”, and “L. A A. S. A. P”. Due to the catchy adds and the Bags Fly Free campaign, passenger traffic rose while going the opposite way with many of the other big contenders (Delta, American, United, Continental, and US Airways). A huge part of their promotion within the market was the frequent flyer program, Rapid Rewards. Unlike the competition, each member received a credit per one way flight they took.
Members could also earn rewards through Southwest’s car rental, hotel and credit card partners. Besides the low fees, heavy advertising, and Rapid Rewards, Southwest had other elements that they looked to expand on operationally. First off was new expansion into geographic markets. Southwest would select cities that would appeal to business customer as well as leisure customers in order to provide as wide variety of flight times. Another huge element was adding flights in areas where rivals were cutting back their service. This was a clear instance for Southwest to jump in on the competition.
In Chicago in 1990, Midway Airlines ceased their operations. Southwest jumped in and was a first mover in adding flights to the airport. Management decided to cut certain flights where numerous seats went unfilled and shifted the focus to growing markets. This was attractive because it enabled them to grow revenues and profits without having to add new planes to the fleet. In order to execute the low fare strategy management had to think outside the box in order to keep fares below those of rival carriers. The company only operated with one type of aircraft, the Boeing 737.
This minimized the size of spare parts inventories, simplified the training of maintenance personal, and simplified the task of scheduling planes for particular flights. Through innovation, like ticketless travel encouraged customers to book flights online. This bypassed the need to pay commissions to travel agents and reduced staff requirements. A huge factor that improved efficiency was where the hubs were. For example rather than focus on congested, over-crowded airports like O’Hare and Dallas-Fort Worth, Southwest ran majority of their flights out of smaller airports like Midway and Dallas Love Field.
This strategy produced on-time performance and a reduction on fuel costs due to when planes sit idle on the runway. Southwest had the flight attendants responsible for cleaning up trash left behind by the passengers. This eliminated the need to pay a cleanup crew and also minimized the time that planes sat idle. To enhance performance and efficiency Southwest added vertical winglets to majority of its planes. The winglets reduced drag, allowed the aircraft travel more efficiently, and significantly reduced fuel costs.
Finally, through regularly upgrading the operating system they were able to lower costs and increase the efficiency of the pre-departure process. Southwest has significantly lower operating costs compared to the competition. This enables them to have extra perks like “Bags Fly Free” and having low cost flights all around the country. Besides the low-cost strategy, the heavy marketing campaign, and catchy advertising slogans, what really makes Southwest the leader in the industry are the people. The operative principle that employees come first pays off.
This allows Southwest to hire employees passionate about their jobs but on the other side it allows the employees to know that Southwest is concerned with their well being. The thesis is simple: keep employees happy, then they will keep customers happy. Southwest took Kelleher’s approach for hiring employees: hire for the attitude and train for the skill. Anyone can be trained to do things where skills are concerned, but you cannot change the persons’ attitude. Southwest looked for employees who were personable, outgoing, and hard working. To find these employees Southwest recruited by newspapers, career fairs, and Internet listings.
In order to select the best employees they would analyze each job category to determine the specific behaviors and traits that job holders needed. The most common trait sought amongst potential applicants was teamwork. Through many tests, Southwest has come up with a hiring strategy that selects the best of the best. In 2009 90,043 resumes were submitted and only 831 new employees were hired. Once on board, the new employees were required to go through and extensive FAA-mandated training program. However, Southwest has its own University where additional training is administered.
At the University, numerous courses are offered allowed employees to be knowledgeable on many topics other than the ones they were hired for. This allows for greater promotion in the long run. Southwest promotes approximately 80% from within the company. This gives employees and extra incentive to work hard. As well as a great environment to work in, the compensation soared above most other airlines. The pay was the highest for pilots and for the all employee average. About 82% of the employees belonged to a union which promotes the no layoff policy. Southwest has never laid off an employee since the company began its operations in 1971.
Management worked with employees and always had an open door policy which made it easy for employees to communicate. One employee had an idea to take company logos off trash bags which saved the airline over $250,000 annually. All this led to a high amount of employee productivity. Southwest’s turnaround times for getting the aircraft ready for departure were approximately 20 minutes quicker than the competition and they had the highest passengers enplaned per employee with the lowest employees per plane. Since Southwest was founded it has stayed true to its low-cost/low-price strategy.
Everything they have done has built off that. Instead of trying to copy one of the larger airline’s strategy, they came up with one of their own that was unique. They stood out from the group making people recognize how good of a company they are. This came through an ingenious operating strategy. They found ways to save money where other airlines couldn’t. They looked to new markets where growth was probable rather than sink more funds into a dry market. This in turn enabled them to offer the best prices on flights making travel possible for so many Americans. The operating strategy is what saved them the money.
However without the people to implement it, the strategy would be useless. The rigorous and selective hiring process enabled Southwest to choose the best employees who would fit the “Southwest Way”. The airline viewed the employees first, then the customers. Teamwork was the key motive all the employees cherish. By putting an emphasis on teamwork the employees were able to work in unison to carry out Southwest’s operating strategy. They were able to prepare planes in a faster manner allowing for more flights to be sent out in a day. Without the notion of teamwork the airline might have not got off the ground.
One key issue I saw with Southwest was their lack of presence in primary airports; most notably in New York and Atlanta. By expanding service to these major cities some of the actions they took to save money might end up costing them more. In turn the fares would have to be pricier from the big hubs as compared to Dallas Love Field or Chicago Midway. However most of the practices they put in place to save them money would be wasted by going into larger hubs. In order to service at these locations they must either raise the ticket prices or make the flights more profitable.
In order to make the flights more profitable without raising ticket prices they would have to acquire fees which they pride themselves on not collecting. Once suggestion would be to invest in larger planes, which would carry more passengers per flight. This way when the planes are sitting idle on the runway waiting for clearance, they are carrying more customers. Also, with bigger planes they would have the possibility of adding more long distance routes. The average flight for Southwest was 90 minutes. So by doing this, they can move into new markets and seek additional profits.
By having planes that can fly long distances to major cities, this also opens up international travel (within North America). Destinations in the Caribbean, Mexico, and Canada all become available. With this market being untapped by Southwest, a larger fleet solves the problem. One way of acquiring the larger planes for these long distance flights would be to merge with another company. In 2010 Southwest had agreed to a definitive agreement with AirTran making them part of the Southwest Company. AirTran was also a low-cost/low-price airline that serviced 70 airports in the United States, Mexico, and the Caribbean.
Additionally AirTran operated out of Atlanta’s Hartsfield-Jackson International Airport, the busiest in the United States. AirTran also would provide the fleet needed by Southwest to service these parts of the continent. The fleet is approximately 10 years old making it one of the youngest fleets in the industry. Southwest would be foolish to not go through with this acquisition. It was estimated that just by entering the Atlanta market Southwest would gain an additional two million customers annually. In order to expand the acquisition of AirTran is necessary.