The CEO of Southwest airlines

In 2009 Gary Kelly, the CEO of Southwest Airlines, was contemplating what it would take for Southwest to survive the economic downfall, due to high OLL prices and decline in demand, that was upon the airline industry. One might argue that in the face of many options Southwest both diversified in there solutions as well as stayed true to the brand they had created. We will argue they did both. They branched out in terms of expansion and customer service, while remaining true to their brand in terms of management style and their online presence, or digital strategy.

Introduction This case study Is the story of a small regional Lorene carrier applying southwest values to become a major industry force. Southwest airlines began its business nearly 40 years ago in Dallas, Texas.

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Out of the ashes of a regional airline fight, Southwest airlines flourished by applying its two key goals of simplicity and low costs. In 2009 (the time this case study was published Southwest Airlines had decreasing revenues due to the financial housing/lending crisis, but was faring much better than many of Its rivals.

The 2009 10-K for Southwest Airlines does not list the direct competitors of the company. However, Yahoo’s financial website lists several of Southwest’s current competitors: Delta Airlines (DEAL), Jet Blue BLOB), and united Continental Holdings (JILL). Southwest Airline’s total revenues for IFFY, IFFY, and IFFY were $10,MOM, $11,MOM (1 1. 55% growth), and $9,861 MM, respectively.

A large percentage of these fluctuations in revenue can be explained in relation to passenger fares with average passenger fares of $114. 61, IFFY of $1 19. 6, and IFFY of $106. 60. As the economy took off from 2007 to 2008, so did the fares which also Increased Southwest airlines total revenue.

The opposite holds true as we entered the deepest parts of the recession in 2009, and average fares declined. Southwest airlines also has positive net income, which is in contrast to many of its competitors. See the table below for additional details: Table 1 Southwest’s Key Information Southwest (WV) IFFY on millions) IFFY on millions) (in millions) Revenue $10,350 $11,023 $9,861 pop.

Expenses $10,088 $10,574 $9,070 Net Income $99 $178 $645 cash $1,114 $1,368 $2,213 Act Race $169 $209 Inventory $221 $203 cape $585 $923 $1331 competitive landscape, the table below shows a listing of revenue, operating expenses, net income, cash, account receivables, inventory, capital expenditures, and total cash flow. Table 2 Southwest’s Competitor’s Key Information Delta (DEAL) Getable OBLIGE) united (AL) IFFY IFFY IFFY IFFY IFFY IFFY IFFY IFFY IFFY Revenue $28,063 $22,697 $13,358 $2,928 $3,056 $2,636 $16?35 $15?37 $15,254 pop.

Expenses $28,387 $31,011 $12,562 $3,007 $3,279 $2,673 $16,496 $24,632 $19,106 Net Income ($1,237) ($8,922) $314 $58 ($85) $12 ($651) ($5,396) $360 cash $4,607 $4,225 $896 $561 $3,042 $2,039 Cataract $1,353 $1,513 $81 $86 $743 $714 Inventory $327 $388 $40 $30 $197 $237 apex $1202 $1522 $828 $434 $654 $617 $317 $475 $723 From the table above, Delta was able to increase revenue during the recession through the acquisition of Northwest airlines.

However, it did begin to decrease operating expenses, inventory and capital expenditures.

Airline operating expenses are related to personnel and to a large percentage Jet fuel, inventory is associated with spare parts and maintenance required to service the planes, and capital expenditures are often the purchases of new airplanes. In IFFY, Delta Airlines was engaged in several alliances with international and domestic carriers to improve rake penetration and cooperation of frequent flier mileage programs. Financially, Delta has reduced capacity and is interested in completing the merger with Northwest.

Getable, on the other hand , is a smaller regional airline carrier, utilizes only electronic tickets, allows reservation specialists to work from home, utilizes similar aircraft (Airbus AWAY & EMBRACE 190) that are generally new, and maintains a strong position in the New York Area (40% of all domestic passengers at KEF). Getable was also hit by the recession s net income dropped in IFFY, but rebounded in IFFY.

United Airlines, on the other hand, had a slight peptic in revenue, but lost money in Fays 08 & 09 (as evidenced in net income).

To further compound the disastrous economic environment, the company suffered hedging losses as a result of oil climbing to $145/barrel and immediately collapsing to the $30/barrel range. United Airlines has a large international and domestic presence, while also carting cargo (3% of company’s total revenue). In summary, Delta and United are industry behemoths that fly both domestically and internationally and use the spoke and hub approach to air travel. Meanwhile, Getable is an upstart Northeast regional air carrier that employs a cost-conscious strategy similar as Southwest Airlines.

In contrast, Southwest Airlines only fly domestically, and utilizes discount pricing and cost- efficient methods to pass savings on to customers. Problem Definition According to the U. S. Department of Transportation airlines can be categorized into four types of services: International, National, Regional, and Cargo (“The Industry grown to become one of the world’s largest low-cost carriers while still remaining a national service carrier, currently servicing only the United States.

In 2008 the airline industry as a whole was facing slowing demand and an increase in fuel prices that, according to the International Air Transport Association (DATA), cost the industry US $5.

2 billion in lost revenues (“DATA – Airlines to lose IIS$5. 2 billion in 2008 – Slowing Demand and High Oil to Blame,” n. D. ). Southwest Airline faces intense competition in the airline industry due to common factors including but not limited to airport capacity, route structures, technology, cost of aircraft, weather, fuel costs and labor.

The focus for this paper will be the strategy that they took in addressing management style, opportunity for expansion, enhancing customer experience and their digital strategy in terms of sales to get ahead, or stay ahead, of the competition.

In Porter’s five forces analysis, as seen in figure 1, you can see that competition arises from both horizontal and vertical sources, other airlines, consumers and suppliers, respectively. Other airlines introduce the availability of substitutes, competitive rivalry and threat of new entrants which lends to Southwest’s considerations to expansion and management style.

The consumers and suppliers introduce the power f the bargaining, hence the attention to enhancing customer service and online strategy. Figure 1: Porter’s Five Force’s Analysis Model In the “Enhancing Service at Southwest” case the 10% drop in passenger traffic along with the loss of revenues and profits is stated as being the root cause of concern for the airline, which is in line with what the industry was facing at that time. Southwest was in need of determining how it would handle the service decisions. The operating model for the airline had been focused on point-to-point travel without all the frills.

They did not offer assigned seats, meal service, coordination between airlines or equines class options and services, but was this a service strategy that could continue? Many airlines had been offering such services and it was time to decide if enhancing customer service by adding these services would fit into the Southwest strategy. Another strategy that could be adopted would be for Southwest to expand into international markets, being a national carrier at the time this was outside of their current structure and experience.

International markets bring the necessity to look at the taxation, infrastructure, environmental and economic state of the countries that would be serviced. Could Southwest airlines successfully integrate into the international market? Southwest was one of the first companies to offer purchase of its services online, which allowed for lower overhead and ability to fill flights that had not sold out at the last minute using its DING! Application.

With the availability and use of the internet increasing, along with their competition employing similar capabilities, was it time for Southwest to upgrade? Although Southwest used the internet as a medium for passengers to manage their itineraries, check in before arriving at the airport, and even purchase tickets from their phone. In an age of information that was the value customers had come to expect Monsoons and Hall, 2009).

Many airlines were now offering reward incentives, additional booking tools and other add-ones that no longer gave Southwest the competitive advantage they were used to.

Similarly, the good spirited nature and playful anecdotes by expected by Southwest customers. Although, other airlines did not offer quite the same experience that you would get by flying with a Southwest crew, they did offer other amenities that were lucrative to travelers, especially business travelers. Southwest management wanted to provide a working environment for their employees that was enjoyable, as this excitement would be passed down to their customers.

Would the management style and operational strategy allow Southwest to stay above water when the demand started to increase? This was something that needed to be addressed by the management team that was keeping employees during the time of employee reduction throughout the industry.

The questions related to service, expansion, digital strategy, and management performance will be addressed in this case analysis. Analysis A chief differentiator for Southwest Airlines is service.

However, in the competitive Netscape of the airline industry it is easy for a competitor to copy the strategy of another. Thus, it is important for Southwest to continuously innovate its approach to service. Chapter 2 of the textbook Operations and Supply Chain Management highlights several competitive dimensions of service Jacobs and Chase, 2011): 1 . Cost or Price 2.

Quality 3. Delivery Speed 4. Delivery Reliability 5. Coping with Changes in Demand The case study highlights how Southwest Airlines adopts low cost coast to coast fares of $99.

The market share for low cost air carriers has grown to nearly 30% of the entire market (Murrain, 2013). Whenever Southwest Airlines enters a market, there is a direct correlation between cost reductions of current incumbents and Southwest.

However, full service airlines also fight back by “differentiating their services against those of Locks or vice-versa, and eventually the airlines differentiating services gained the power to be able to control their price-cost margins” (Murrain, 2013).

In return, Southwest earns credits in return that can be used to buy fuel as discounted prices and even pass more savings on to the consumer. Quality is paramount to business. Per the hybrid model study, “having developed high levels of quality Laager, ; Schroeder, 2011). The quality of Southwest’s service personnel speaks for itself. In a study performed by the Mays Business School, Southwest Airlines was ranked second only to Getable for: individual attention, helpfulness, courtesy, promptness, and overall satisfaction (Barbara & Softer, 2008).

This speaks mountains about Southwest’s ability to grow its market share through intense focus on servicing its customer. While examining opportunities to improve or cut costs related to service, Southwest undoubtedly considered service offspring. The problem with service offspring is that it can lead to cultural conflicts that ultimately lead to lower quality (Youngling, Ramsey, ; Dash, 2010). Southwest has stuck to its core values over time of only hiring the best employees (?1. 5% of applicants) in the markets that it serves.

The problem is that the other airlines may eventually adopt this service emphasis.

At the time of the case study, Southwest was interested in improving its service by: adding “Fly BY’ Security Lanes (priority access for top-tier customers), improved baggage tracking, call back service while waiting for customer support on the telephone, and outbound messaging which has allowed the company to send flight information to its customers (“EDGAR ONLINE – SOUTHWEST AIRLINES CO (LUVS) – 10-K – 1/29/2010,” n. D. ).

Since the depths of the recession, Southwest has tried to improve service by: infilling internet & live television, improved outbound messaging with the ability to be hang up and be re-connected later when an agent is available, and by giving gate agents hands free headsets so that they can better serve the customer at the gate (“EDGAR ONLINE – SOUTHWEST AIRLINES CO (LICK) – 10- K – 2/7/2013,” n. D. ).

Southwest also relies on providing its services (I. E. , aircraft) with reliable speed to meet the market’s changing demands (points 3,4,5 above).

By utilizing the same Boeing 737 airplanes across its entire business, Southwest obtains cost advantages in maintenance, spare parts, training of staff and utilization of pilots across any plane.

Utilization of the same plane design also has advantages in decreasing the airline industry bottleneck: transitions. Per the case study, the average time for a transition is 60 minutes, while Southwest currently averages 25 minutes. In order to minimize the impact from the bottleneck, Southwest has all employees both on and off the aircraft service it while it is docked.

By understanding he layout of the plane, attendants are able to seamlessly communicate key transition steps. Throw in speedy boarding, and Southwest is able to minimize the transition time. Also, Southwest has historically maintained a new air fleet, which also cuts back on maintenance while adding to reliability.

In the IFFY 10-K, management discussed a strategy to modernize its aging fleet, “the Company has multiple efforts underway to replace its older aircraft with newer aircraft that are less maintenance intensive and more fuel efficient and that also have a greater range.

Even in times of recession, industry slowdown, and expansion Southwest has chosen not to reduce resources and encourage employees to participate in ongoing education so they are ready to take on whatever opportunity may come up. Recommendations “For instance, assume that a consumer has to purchase a ticket for an international flight. Airline Company A has the lowest price; Airline Company B has the best food ND airline C is always on time.

The consumer will clearly not buy 3 tickets from Company A and B and C in order to realize the benefit of these 3 attributes. The consumer will purchase only one airline ticket” (Airman, 2014).

Southwest airlines Southwest must continue to push boundaries while sticking to these two simple attributes. This section of the case analysis will discuss recommendations for Southwest airlines as it heads into the next century of air travel (100 years on January 1, 2014). Southwest prides itself on the ability to provide superior service.