Southwest Airlines Assignment

SOUTHWEST AIRLINES’S STRATEGY TO UPGRADE CUSTOMER SERVICE

1.0 Introduction The airline's goal is to deliver a basic service very efficiently. This translates into a number of fundamental objectives. A central pillar of its approach is to provide safe, low price transportation in conjunction with maximum customer convenience. The airline provides a high frequency of flights with consistent on-time departures and arrivals. Southwest Airlines is the leader in providing low cost in state flights for its customers. It consistently offers frequent flights, inviting cabins, realiable service, and amazing customer service. The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride and company spirit. According to Ross R.Reck from the book titled The X-Factor : Getting Extraordinary Result from Ordinary People, author stated that , Southwest has the best customer service record in the industry based on baggage handling, on-time performance , and customer complaints . In addition Southwest cancels the smallest percentage of flights of any airlines and has the best safety record in the industry. In this airlines industry, airlines compete for three primary types of customers: travel agents, corporate travel managers, and individual travelers. The two major categories of passengers are leisure travelers, who tend to be quite price-sensitive, and business travelers, who are more concerned with convenience. To satisfy the different needs of some or all of these groups, Southwest airlines present a wide variety of service, depending on their strategy.

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1. Southwest Airline’s Strategy

1.1.1 Customer Service Southwest’s approach to customer service is one of its core strategies. Its “Positively Outrageous Service” (POS) is different from the customer service associated with other major airlines. Service is provided with friendliness, caring, warmth and company spirit-staff go out of their way to be helpful. This approach to service leverages off Southwest’s outstanding relationship with its employees. However, this stellar customer service does not include costly amenities like reserved seats or food service, and only offers very limited automatic baggage re-checking. By emphasizing flight frequency and on-time performance, Southwest has redefined the concept of quality air service. This unusual approach has allowed Southwest Airlines to differentiate its service while maintaining its cost leadership strategy. Indeed, Southwest proudly proclaims, “We are a company of People, not planes. That is what distinguishes us from other airlines and other companies.” In many respects, the vision that separates Southwest from many of its competition is the degree to which it is defined by a unique partnership with, and pride in, its employees. As stated in its Annual Reports: “At Southwest Airline, People are our most important asset. Our People know that because that's the way we treat them. Our People, in turn, provide the best Customer Service in the Airline industry. And that's what we are in business for - to provide Legendary Customer Service. We start by hiring only the best People, and we know how to find them. People want to work for a "winner," and because of our success and the genuine concern and respect we have for each of our Employees, we have earned an excellent reputation as a great place to work. As a result, we attract and hire the very best applicants. Once hired, we train, develop, nurture, and, most important of

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all, support our People! In other words, we empower our Employees to effectively make decisions and to perform their jobs in this very challenging industry”. 1.1.2 Lower Ticket Price : By cuts costs for everyone with a plan to offer its customers no in flight meals. Southwest Airlines has come up with a plan to offer its customers no in flight meals, which cuts costs for everyone, a first come first serve seating, and outstanding customer service to make the low cost experience feel like your flying first class to your destination. 1.1.3 Travel Agency Exposure. Southwest sells only 60% of its tickets through travel agents (compared to 80-85% for the majors), thereby saving the 10% commission paid to travel agents. This also alleviates the need to participate in many of the travel agent reservation systems. While this reduces the company's breadth of distribution, it helps to reduce commission payments and Computer Reservation System (CRS) fees, which are approximately $2.50 per flight segment. 1.1.4 Technology: New ticket dispensing kiosks Technology factors can influence all types of organization. Possibly the area having most impact is information technology and computer usage. In some areas this has led to a substitution for labour and a significantly ‘improved service’. Consider the changes in domestic banking offered by automated teller machines (ATMs) and in retailing by bar code scanning linked to electronic point sale systems (EPOS).Access to a whole range of banking services has been significantly improved, and customer waiting and service time in retailing has been substantially reduced.

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Often the ‘new service’ can involve a substantial ‘overhaul’ of the manner in which the existing service is delivered, perhaps exploiting some technological development. An example could be the introduction of debits cards by banks to replace cheques by an electronic means of transferring cash between accounts. In 2002 Southwest introduced 250 new ticket dispensing kiosks throughout the airports, the goal with these kiosks was to reduce the time spent in line and improve airport experience since September 11 2001.Like all airlines,Southwest is a very heavy user of computer-related technology. This technology supports all activities from scheduling to reservations to general operations support. The network is built on four superservers and a reservations subsystem that connects more than 5,000 PCs and terminals across the country. Remote locations communicate with the servers using TCP/IP across Novell LANs. This network supports a reservation system that has enabled Southwest to be the first carrier to offer ticketless travel on all of its flights. They now average more than 15,000 ticketless passengers per day, according to Robert W. Rapp, Vice President of Systems. The ticketless system offers significantly improved customer service by eliminating lines at ticket counters. The system also reduces costs; it is estimated that it costs an airline from $15 to $30 to produce and process a single paper ticket. 1.1.5 Southwest recognized have "Best Airline Web Site" by Air Transport World Customers using the Southwest ticketless system can purchase a seat on a Southwest flight by telephone or on the Internet. Customers receive a confirmation code, which is traded for a boarding pass at the airport. The concept of ticketless travel originated at Morris Air, a Salt Lake City airline acquired by Southwest in 1993. Although policy and operational differences prevented Southwest from adopting the Morris system, the company was able to accelerate the development 4

of its own system with the assistance of Evan Airline Information Service, a consulting firm that helped to develop Morris Air's system. The first ticketless passenger boarded a Southwest plane only four months after development began. All Internet activities are concentrated under Kevin Krone, Manager of Marketing Support. Marketing activities explicitly build on the Internet as a primary marketing channel. Krone's activities are closely coordinated with the requirements and support facilities of Rapp's department. Southwest was the first carrier to host a web site, WWW.IFLYSWA.COM, which was deemed "Best Airline Web Site" by Air Transport World. It recently launched a joint venture with Worldview Systems to enhance its Internet presence. 1.6.Customer Profile : Rewarding being early with a choice seat, and still offering that POS services Southwest Airlines have long since prided itself on a no frill low fare flights. This kind of service, in addition with their outstanding customer service, attracts mainly families and the traveler looking to save a few dollars. This demographic segmentation allows southwest to offer their target market the best possible service, and prices, by rewarding being early with a choice seat, and still offering that POS service. Since young families are their main customers Southwest offers promotional coupon with their flights in order to attract customers going on vacations. Such as they created an alliance with a Ski resort based in Utah, Southwest then offered a weekend of skiing on them, if you chose to fly on their airline. Also southwest targets travel agents, corporate travel managers along with their individual travelers

1.1.7 Safety Requirement : 30 years of safe, reliable operations 5

There are many different criteria that can be used to evaluate Southwest’s success in achieving its basic objectives. Certainly Southwest different constituencies look at its performance in different ways. For Southwest airlines, no issue is more important than safety. One needs only to study the checkered history of ValuJet or Air Florida to see what one catastrophic crash can do to an airline when the airline is perceived to have been at fault. Meanwhile, Southwest maintains a 26-year safety record and is generally acknowledged to be one of the world's safety airlines.

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Customer Satisfaction : the best on-time record, best baggage handling and fewest customer complaints

Of course, Southwest’s customers remain one of the company's main constituencies. Despite its "no-frills" orientation, Southwest consistently receives the highest rankings for customer satisfaction. This is achieved through the successful management of customer expectations. By emphasizing low price and consistency, Southwest has successfully redefined the concept of quality airline service. For example, the "Triple Crown Award" goes to the airline, if any, which has the best on-time record, best baggage handling and fewest customer complaints according to statistics published in the Department of Transportation (DOT) Air Travel Consumer Reports. First won by Southwest in 1988, the airline has won the award every year since 1992. No other airline has ranked on top in all three categories for even a single month. Given its mission, employee satisfaction is another important indicator of company success. Personnel are a crucial determinant of organizational performance throughout the industry. Labor costs are about 40% of operating costs in the industry, while at Southwest they are considerably lower. As noted, labor relations are an important determinant of company survival. Southwest has one of the lowest personnel turnover ratios in the industry. It began the first profit 6

sharing plan in the industry, and employees now own more than 10% of the stock. Fortune has named Southwest as one of the best companies for attracting, developing and keeping talented people. In 1997 Fortune ranked Southwest first on its list of the "100 Best Companies to Work For in America." 1.1.9 Route Structure Historically, Southwest has specialized in relatively short-haul flights and has experienced considerable threat from providers of ground transportation (cars, trains and buses) because the buyers of these short-haul services tend to be quite pricing sensitive. Southwest has widened the market for air travel by attracting large numbers of patrons who previously relied on ground transportation. For example, before it entered the Louisville to Chicago market, weekly traffic totaled 8,000 passengers. After Southwest entered the market, that number grew to over 26,000. This increase in traffic is now recognized as "The Southwest Effect." Emphasis on short-haul flights has also allowed them to pare costly service such as food, which passengers demand on longer flights. Passengers are provided with only an "extended snack" -- cheese, some crackers and a Nutri-Grain bar. 1.1.10 Turnaround Time Its route structure has helped Southwest to experience the most rapid aircraft turnaround time in the industry (15-20 minutes vs. an industry average of 55 minutes). Interestingly, Southwest's "10 Minute Turnaround" can be traced directly to the carrier's first days of operation in Texas when financial pressures forced the company to sell one of the four Boeing 737s it had purchased for its initial service. Having only three planes to fly three routes necessitated very rapid turnaround.

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Rapid turnaround time is essential for short-haul fights because airplanes are airborne for a smaller percentage of time than on long-haul flights. Faster turnaround also allows Southwest to fly more daily segments with each plane, which in turn increases its assets turnover.

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