South West Airlines
...l hubs that encounter many delays. By scheduling frequent flights, they are able to serve more customers, creating higher ticket revenue at a low cost. Great customer service is another feature of Southwest Airlines. Customer service is a major part of the corporate culture. Employees are expected to go to great lengths to help customers in need and to help each other, like family. 3. Competitive Advantages The major competitive advantages this company has include its highly effective cost and incentive structures, its Human Resources, and Herb Kelleher, the companies CEO. 3.1. Cost Structure The first advantage which greatly helped to keep this company ahead of its competitors was the companies cost structures. Cost structure and strategies, included a focus on short haul flying, which generally was the least cost efficient type of flight, and was considered the area within the airline industry as that which has the most room for improvement because of the relevant difficulties and inefficiencies in running this method. Kelleher took this not as a problem but as an opportunity, and implemented unique strategies which proved beneficial within this section of the industry. Because of high work force efficiency, and excellent worker productivity, turnarounds were completed in less than half the time of their competitors, gates were effectively run with a crew of one, where their competitors ran their gaits with crews of three, ground crews of six where competitors used twelve, an average of eighty one employees per plane where their competitors had more than one hundred and fifty. Southwest also focuses on point to point transportation which increased efficiency of flight operations, and the use of a single type of aircraft to save on maintenance costs. Their choice and utilization of the 737 airplane, a small narrow body aircraft, created a savings not implied in the original case. Pilots earn different rates of pay, depending on the plane they fly. Pilots who fly smaller planes earn less money than pilots who fly larger planes. As can be seen from the following data, this choice of a plane increased company efficiencies, and thus their competitive advantages. The following data was developed by the airlines pilot associations economic and financial analysis and retirement departments. Airline Pilot Hourly Pay CAL DAL NW UAL USA Wide Body 12 year Captain $202 $265 $241 $222 $244 Wide Body 5 year First Officer $115 $160 $143 $136 $144 Large Narrow Body 12 year Captain $172 $198 $188 $182 $185 Large Narrow Body 5 year FO $96 $118 $110 $110 $111 Small Narrow Body 12 year Captain $152 $201 $181 $175 $161 Small Narrow Body 2 year FO $68 $70 $60 $72 $73 3.2. Leadership The second major competitive advantage was Herb Kelleher. The strategies implemented were supported by a highly motivated leader, Herb Kelleher, Chief Executive Officer, who was one of the airlines founders. Herb Kelleher promoted a strong corporate culture and consistently demonstrated a strong work ethic. Herb had excellent leadership qualities, emotional intelligence, was hard working, and was named one of the five lowest paid CEO’s. Herbs always lead by example, and wouldn’t quit until the job was done. He enjoyed partying, and related well to all the employees, who called him by his first name, always closing the psychological and physical gap between management and personnel. The competitive advantages are deeply imbedded in the nature and structure of the company, and the people who make the company. The competitive advantages given to this company were first driven into the fiber of this company by the company’s founder, Herb Kelleher. The company has grown, making many of the competitive advantages which are unique to smaller organizations challenging to maintain, Herb Kelleher consistently lead the organization in an extremely effective manner, maintaining the unique competitive advantages. He maintained the companies focus on its primary mission, and lead utilizing both directive and participative leadership styles. Herb has charisma, and a great degree of emotional intelligence, and seemingly demonstrates a personal power derived from that charisma combined with a high level of expertise in the industry. Whenever an individual is identified as being a key person, driving force within a company or playing a pivotal role in the development of a company departs, shareholders and employees naturally become apprehensive. The reason for the departure can determine the amplification of the effect on the company, the spirit of the employees, and the share price of the stock. Should Herb Kelleher leave on good terms, it is likely that he would have a predecessor chosen. That individual would likely be chosen for many of the same qualities that Herb has, and would likely be an individual from within, who demonstrates similar work ethic, and spirit. This individual would likely be chosen by herb himself, increasing the likelihood of the acceptance and subsequent success of transition. The apparent and realized success in the current strategies chosen by Kelleher have helped employees to believe strongly in Kelleher’s ability to run the company, and thus a choice made by Kelleher himself would likely be perceived as a good choice by the employees, and thus supported by those same employees and shareholders. 3.3. HR Management The third major competitive advantage was the human resources department. This was known as the “People department”, and was run by Ann Bartlett, an extremely bright person who felt very strongly about her customers (the employees). Ann believed strongly that employees maintain a high level of “Southwest Spirit”, which is demonstrated by a high level of teamwork and cohesiveness. She believed that the company was only as good as its people, and, as a result of feeling a threat to this culture because of the increasing size of the company, created a “culture committee” to reinforce the importance of the maintenance of the culture. This committee meets four times a year to help preserve the Southwest spirit and culture in the face of company growth. People were spelled with a capital “P” in her department. It was very strongly believed that employees should be treated as internal customers, with the same great level of care. The companies hiring practices went a step further in promoting the companies emphasis on empowering the employee, and promoting the culture. Hiring processes included choosing people for their attitude, having customer’s interview flight attendants, and pilots interview pilots. At times, actual customers were brought into the interviews to help to choose the employee whom the customer finds to be best. There was a strong emphasis on internal training, with a belief and emphasis on promotion of spirit and culture and teamwork. The company promoted a do anything for the customer attitude. The incentive system was unique in the airline industry. The pilots and flight attendants were paid by the flight, and most of the jobs were actually paid less than the competitors. Company ownership was promoted through a profit sharing plan which individuals were expected to invest 25 percent of their profit sharing money in the companies stock. In all, about ten to twelve percent of the company was owned by the employees, causing them to have a significant steak in the success or failure of the company. In this company, the competitiveness, the feeling of being a family, and the spirit created a dynamic and motivating atmosphere which became the competitive advantage. This culture of this company is very strong. As it is inherent throughout every aspect of this company, it creates a unique and effective environment for the employees. The company wanted the customers to think of family, love, and care, when they thought of Southwest Airlines. The company utilized symbolism to help promote its culture. The Companies stock symbol was LUV, and a red heart was emblazoned on the side of all planes, corporate communications, and all advertisements. This culture bred competitiveness, strong work ethic, teamwork, high spirit, and a go all out attitude for both the company and the customer. This culture gave unique advantages to Southwest Airlines, helping to stave off the competition at every corner and within every aspect within the company. 4. Issues and Recommendations Southwest has been very successful as a carrier in the low cost/ low fare market. Because of its success, its strategies and even its policies are being imitated. The two biggest direct threats come from Continental Lite and United Airlines. After emerging from bankruptcy in 1993, Continental Airlines split the company into two operations. One features first class service at business prices and the other (Continental Lite) focuses on low fare, short haul service. Bob Ferguson, CEO of Continental Lite, believes that they will be able to compete successfully against Southwest because of their low cost structure, even lower than Southwest’s. They plan to target the east coast market where they can take advantage of greater density, shorter flights, and avoid d...