Case 3-1 Southwest Airlines

Southwest Airlines Corporation 1. What is Southwest’s strategy? What is the basis on which Southwest builds its competitive advantage? Southwest follows low cost leadership strategy. Southwest’s strategy is to improve efficiency and pass cost saving to its passengers by offering them low prices. The bases on which Southwest builds its competitive advantage is by putting employees first. “Employees first” philosophy helps the organization to keep its employees highly engaged, which in turn motivates the employees to serve the customers better resulting in high customer satisfaction. Loyal customers in turn result in generation of revenues for the company, thus increasing shareholder value. Southwest has lowest operational cost due the the various initiatives taken to cut cost. This helps it to offer lowest fares. Southwest flies point to point unlike other airlines which use hub & spoke model. It uses a short and medium haul approach. Crew is paid per trip. Pilots are unionized independently, allowing them to fly far more hours than pilots at other airlines, who are nationally unionized. It uses less congested airports, which helps it ensure fewer delays. The turnaround time from landing to takeoff and crew required is lesser (approx 20-25 minutes & required a ground crew of 4+2 people by the gate, as against United Airlines which took about 35mins & a ground crew of 12+3 gate agents). 80 % of its passengers fly on non- stop flight routes. This helps to save flight time, operate more flights, cut other additional cost on crew, gas and maintenance. Low employee turnover rate helps Southwest to save on cost of hiring and training. About 60% of Southwest’s passenger revenue was generated by online booking via Southwest.com resulting in cost, time and manpower savings.

2. How do Southwest’s control systems help execute the firm’s strategy? Southwest strives for goal congruence. The actions people are led to take in accordance with their perceived self interest are also in the best interest of the organization. Southwest’s control systems helps in influencing behavior of its people in a goal congruent manner. Its control system help execute the firm’s strategy of low cost leadership by implementing short haul and medium haul, encouraging on-line booking, ensuring lesser time spent at the gate, hedging fuel and oil (It used hedging for 85% of its fuel & oil needs & saved about $455 million). It has an open and inclusive culture. It boosts of a culture of hardwork, high energy, fun, local autonomy, and creativity. The hiring process at Southwest is unique. Peers screen candidates & conducted interviews. E.g: pilots hired pilots, gate agents hired gate agents etc. Also, it initiated the 1st profit sharing plan with its employees in the U.S. airline industry, through which the employees owned about 10% of the company stock. These initiatives have helped in developing feeling of ownership in employees. Southwest has a charismatic leader in CEO Herb Kelleher. Southwest encourages proactiveness by providing recognition to personal initiatives taken by its employees. It ensures task control thorough automation (e.g: 60% revenue through online booking, Ding! The desktop application that provides customers with exclusive deals).

Southwest consistently tries to find ways to improve its efficiencies and pass on the cost savings to its passengers.