Southwest airlines case study

PGDM-EX 2013-14

SOUTHWEST AIRLINES (A) Case Analysis Swapnil Waghmare Syed Adil Umair Veeresh Kaul V. Ramkumar Ashutosh Srivastava Mazhar Hossain

GROUP 10

SOUTHWEST AIRLINES (A)

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Summary: The LUV airlines as it is fondly called, Southwest Airlines revolutionized the airline scenario in America by successfully sustaining its Low Cost Airline model over decades. The case study begins with Anna Rhoades, Vice President of people (HR Dept.) of SWA reviewing her brief prepared for her next day’s meeting with the top nine executives regarding the threats and challenges imposed by the recent actions by United and Continental Airlines. Started on June 18, 1971, SWA, headquartered at Love Field, Dallas began flying with only three Boeing 737’s serving the Texas cities of Dallas, Houston and San Antonio. The success story of SWA has been a sum aggregate of various small, simplified, successful strategies. It still continues with its initial operating style of concentrating on flying to under-utilized airports which are close to metropolitan areas. Its shorter turn around times (15 minutes) results in frequent on time departures. It keeps its fares simple while pricing all fares the same within the same state. It derives cost advantages through the remarkable work productivity by its work force. Its gates are managed by a single agent and a ground crew of six in comparison with 3 agents and 12 ground crews of its competitors. The flight attendants and pilots help clean the aircraft or check passenger in at the gate. Its habit of emphasizing on Customer service has made it win Triple Crown 24 times and Annual Triple Crown Award thrice. Although 89% unionized, the airline is a dream company to work for where everyone considers itself to be a part of the LUV family. Its CEO, Herb Kelleher is a gifted labour relations expert and a people’s person. He has adopted visible, hands on, slightly over the top style by ensuring that people enjoy their work more and work productively. There is a relaxed management style with serious attention paid to employee parties and celebrations. The HR department called as the People Department is the backbone of SWA where resources are truly respected as resources. Although receiving more than 98,000 applications only 2,700 are finally recruited because of its philosophy of recruiting people having the right attitude and creative spirit. Even in refusing the majority, it ensures to do so politely and in a dignified manner to create a long lasting relationship with them. More recently, United and Continental airlines have begun low cost airline within an airline challenge to Southwest directly. They were not only directly imitating the Southwest strategy; they were also using its policies and procedures. However, both of them were occupied with their own plagues. Continental’s CA Lite is flying with about 59% seats filled and customer reaction is not positive. The employees of Continental are miffed and dissatisfied and its financial results are also not up to expectations. The same story goes with United’s Shuttle with its management dealing with power struggle in its own home rather than concentrating on the airline. The case study concludes with Ann Rhoades wondering if the threat could seriously damage Southwest and what actions, if any, should the senior management take to counter them. Plus the feeling of complacency within the company because of SWA’s uninterrupted success over the decades is also a cause of concern for her. There was also a fear of affect on the family type bondage in SWA because Southwest has grown over the years into a bigger organization, having 14,000

PGDM EX 2013-14

HRM

Group 10

SOUTHWEST AIRLINES (A)

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employees as of now. And finally, the trickiest was the succession problem; who to nominate after Kelleher, who has been the head of the company since 1963.

1. What is southwest’s strategy? How would it answer the question, “what business are we in?” Why has it been successful for so long? Southwest strategy for business is quite simple and concrete. They have focused on the low cost airline travel solutions. The major market of airline travel was through California corridor which had 80% more traffic than Boston- New York – Washington corridor. It concentrates on flying to airports that are underutilized and close to metropolitan area- e.g., Love Field in Dallas, Hobby in Houston, San Jose and Oakland in Bay Area etc. It thinks of itself as a Customer Service company that happens to fly airplanes (on schedule, with personality and perks along the way) because of its frequent on time departures as well as low cost fares with a belief that an important part of its competitive advantage rested with its people and how they were managed. The main reasons which have made the Southwest airlines successful for so long were: A. They have been able to utilize the underutilized areas by concentrating on the airports which were close to metropolitan area. B. Their planes are most fuel efficient 737s. C. They have point to point routes, with no central hub which take very less time as compared to other flights which were having connecting flights for the similar areas which would ultimately take longer travel time. D. Their flights are on time and have very good reputation among the customers. E. Southwest never opted for meal in their flights that ultimately adds $40 to per passenger in flight; rather they provide small snacks to the passengers. F. SWA has a frequent flyer club which is a discount based model on the number of trips flown rather than the mileage. They have other awards associated with tickets as well. G. Their flight attendants are trendy, attract customers and are known for their extraordinary hospitality as well. SW pilots spend more time in air when compared to other airlines’ pilots. These simple but highly effective strategies have made SW airlines most profitable for the last 21 years.

PGDM EX 2013-14

HRM

Group 10

SOUTHWEST AIRLINES (A)

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2. Can its success be replicated by a competitor? Why/why not? Their success cannot be replicated by their competitors because the competitors are not capable to imitate the successful human resource practices of the Southwest airlines. The major advantages that Southwest airlines have are: I. II.

III. IV.

V. VI.

SW airlines have a dynamic CEO. Kelleher under whose leadership and employee friendly approach the SW airlines have been able to achieve what others have not. The employees of SW airlines were committed to work and they always volunteer themselves to help customers in need. Their friendly approach has paid off and one employee is able to get more work done as compared to other airline’s employees, which has ultimately increased the productivity of the employees. The HR practices of SW airlines were highly structured and effective in business culture. The recruitment process was so good that only the most eligible candidates were recruited. Rest of the candidates those who were rejected were not let down and encouraged so that they would become the potential customers of SW airlines without having any hard feelings in their mind. The training practices were lucid and involved very less attrition. The training was mainly concentrated upon high level of customer service. Even the ex employees were ready to provide services and used as a ready workforces as a backup for the airline staff.

These were some few success facts which cannot be replicated by a competitor of SW airlines. 3. How would you analyze southwest’s human capital management system? How does this system link to the execution of its strategy? The human capital management system at southwest is well planned and managed because of which they have a competitive advantage over others. The average cost of southwest airline was 7.1 cents per mile which was far below the others which was 10 cents or more. This was possible because of the following reasons: 1. The southwest pilots average pay was 100000$ per year with 70 hours of flights per month while those of other was 200000$ with only 50 hours of flight per month. Flight attendants and Pilots help clean the aircraft and check passenger at the gate which was the part of the southwest culture. 2. According to the southwest culture its employees also routinely volunteer to help customers in need. These efforts pay off in employee productivity. In 1993 southwest had an average of 81 employees per aircraft compared to others who had more than 130 employees per aircraft. Southwest served an average of 2443 passenger per employee resulting in increase in their profits.

PGDM EX 2013-14

HRM

Group 10

SOUTHWEST AIRLINES (A)

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3. The recruitment process is also very well designed. They are very selective in their process. In 1993 they got approximately 98000 applications out of which they selected only 16000 and hired 2700. 4. They select the person who will adjust to the southwest work culture and has the quality of working in a team. For this they call their employees during the recruitment process and ask them to give feedback on whether this person will be fit in the company or not. 5. They have spent a lot of time in identifying the key components that comprise effective performance and behavior. 6. Training is also very important aspect, which southwest emphasized to capitalize their human capital management system. For new employees they have ‘new hire celebration’ designed to get new employees enthusiastic and excited. Likewise they have other training programs for their employees. 7. The work force at southwest is offered low salary at the beginning and gradually it increases with their seniority. 8. The pilots and flight attendants at the southwest airlines are having an added advantage of earning 10 to 15 more hours per month by flying more trips. 9. Another concept they employed to capitalize their human capital management is Profit sharing. It covers all employees who have been with the company for over years and they are required to invest 25 percent of their profit sharing money in southwest stock in a retirement account. 10. Because of the conservative hiring policies and growth, southwest has a young workforce; the average age is 34. Turnover is low; the company has never had furlough or layoff. Because of limitations in its labor contracts, it uses few temporary or part time employees. All the above mentioned situations helped the Southwest to execute its designed strategies very well. Low turnover of employee helped them get more productive workforce and hence more appreciating results. Were able to apply low fare strategy because of the low cost. Achieved customer satisfaction because of the well trained and committed employees. Loyalty with the company increased the productivity of employee and resulted in low iteration rate.

PGDM EX 2013-14

HRM

Group 10

SOUTHWEST AIRLINES (A)

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4. How would you describe the culture of the organization? 1. From the beginning southwest has a free management style which reflects in its culture. They encourage their employee to deliver great customer service and have fun too. 2. They developed a culture of not wearing formal wears but put their flight attendants in hot pants and using its location at Love Field to launch an advertising campaign ‘make love not war’ a theme that is still used today when southwest refer to itself as the LUV airline. 3. When Herb Kelleher was the CEO he developed a culture to promote party and have fun. He believes that “you don’t have to surrender your individuality to work for southwest airlines” This is seen in the phrase sometimes heard at southwest, “work is important….don’t spoil it with seriousness” 4. Serious attention is paid to parties and celebrations for which a budget is allotted for employee and their family. This party culture helps southwest to engage its employee very well and get productive result because of their engagement. 5. The people department here is well concerned with the employee satisfaction. They consider their function is to satisfy customer and for them southwest employees were their internal customer. 6. One of the most important features of the southwest culture is team work. They believe in working for the team and with team to attain results. 7. Continuous efforts were made to preserve the values that brought southwest to its current position. Trust is build by constantly sharing information and the level of trust has never been broken. 8. At southwest, people are their most important resource and they capitalizing on it.

PGDM EX 2013-14

HRM

Group 10