Southwest Airlines in Baltimore

Southwest Airlines in Baltimore – Case Study Q. How does Southwest Airlines compete? What were their advantages relative to other airlines? Price The pricing followed was low fares for every seat. Low fares were even more important in the short-haul market niche where customers had the ground transportation as a viable alternative. The key to success was to charge low fares regardless of what other airline competitors charge. Southwest Airlines consists solely of Boeing 737s and offers only coach seats (there is no business or first class). Southwest Airlines also do not offer in-flight meals, only peanuts and other snacks. Southwest is simple and direct at the goal of their service; "a primarily short-haul airline that flies directly from city to city, with just one type of plane--the Boeing 737 - and the lowest costs" People One of the most crucial points for Southwest’ success was having a people force that was motivated, intuitive and result oriented. It was the most heavily unionized airline at that time but the transparency in setting wages and cooperative union policy by Southwest, resulted in very favourable operational results. Independent agencies like Fortune magazine had named Southwest Airlines one of the best companies to work for in America. While Southwest Airlines offers no frills, Southwest Airlines do meet customer expectations when it comes to service. They base their model on the motto, which states that "if they're happy, satisfied, dedicated, and energetic, they'll take real good care of the customers. When the customers are happy, they come back. And that makes the shareholders happy," Southwest has very good relations with all their employees. Route Structure Southwest used to offer lots of daily flights within the cities it served. That’s the “high frequency” part of the short-haul, low-fare, high-frequency strategy that Southwest Airlines used to employ. 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 price-sensitive. Southwest has widened the market for air travel by attracting large numbers of patrons who previously relied on ground transportation. 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). 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. Airplane Fleet The company only flies Boeing 737 planes and has committed to fly the 737 exclusively. Southwest developed a close relationship with Boeing that enabled it to develop comparatively favourable purchase terms. The homogenous fleet composition

reduces the complexities of training, maintenance and service. Savings exist in almost all operating areas including scheduling, training, aircraft deployment and use, wages and salaries, maintenance and spare parts inventories. Flight Connections Southwest does not offer connections to other airlines, which simplifies its ground operations. However, this also limits access for many passengers, particularly from international flights. Q. The plane turnaround process requires coordination amongst twelve functional groups, matching an incoming plane to its new passengers and baggage in a brief period of time. Critically evaluate SWA’s turnaround process at Baltimore – how is the process working? A high level of coordination was needed between among 12 distinct functional groups: pilots, flight attendants, gate agents, ticket agents, operations agents, ramp agents, baggage transfer agents, cargo agents, mechanics, fuelers, cleaners and caterers. These groups were stratified by status, expertise, and were evenly spread out at the terminal. These groups of workers traditionally did not have a good history of cooperation. Southwest invested time and money in selecting employees for attitude, teamwork and service orientation. Flight Connections SWA’s reservation system does not allow passengers to book connecting flights within the airline that has a connection time of less than 35 minutes between the arrival of the first flight and the departure of the second flight. This helps to ensure that there are no customers who are missing connections. Ground Operations Other airlines centralised their aircraft turnaround, ground operations and managed daily flights from a headquarters using an integrated computer system. Southwest decentralised this coordination, leaving it up to employees on site in airport stations. Operations supervisors onsite had to plan ahead to identify possible problems throughout the day and would come up with a design solution to these challenges e.g. delaying a plane for departure if the incoming flight had connecting passengers. OTIS – Operations Terminal Information System Southwest operations staff would update this internally developed system for tracking flight information. It contained information regarding: passengers, revenue, baggage, weight, fuel as well as flight times and delays. Q. What strategic advice would you offer to SWA based on the information available at the time (2003)? Southwest Airlines were able to operate their business relatively undisturbed. It was only in poor economic conditions that suddenly Southwest Airlines' method of operation became the ideal model for its competitors. While the publicity is beneficial in raising employee morale, and raising stock prices; Southwest Airlines is now the target of their competitors' focus.

Engage in price war A tactic that Southwest Airlines can do to inflict damage to competitors is to slash prices. This type of tactic is typical of a big company that has a monopolistic rule in an industry squeezing other competitors. This tactic is advisable when competitors are near bankruptcy or are in dire situations. Because competitors cannot match Southwest Airlines' prices, the most they can do is narrow the gap of the price difference. Southwest Airlines, which has consistently made a positive profit, can increase the price gap by lowering their prices. Southwest Airlines will incur losses from this move, but the goal of this move is to drag the competitors further into debt. Because this move affects both companies, this move is very risky and should not be done unless Southwest Airlines is sure that their competitor is near bankruptcy. Possible reasons for this move would be to eliminate the weakest competitor in the industry, which would free up the market held by that company. Expand customer reach Southwest Airlines, however, is not without weaknesses. No matter how successful, Southwest Airlines serves only 29 states and cannot compete against the bigger companies that serve nationally or even internationally. Furthermore, Southwest Airlines does not utilize a hub system that allows for bigger competitors to reach further out. Such competitors are aware that they cannot match Southwest Airline's prices; their market is larger and is not able to offer cheaper tickets at the cost of no in-flight meals. Instead, competitors narrow the price difference between Southwest Airlines and themselves and stress on the quality of these frills. Others, through use of flight hubs, are the only ones who can economically serve remote customers. Expand Fleet Another weakness of Southwest Airlines is their preference of Boeing 737s. Being limited to one type of airplane leaves them with little flexibility when the model receives a bad reputation or a critical flaw is discovered. Such would be a costly venture for this company, who've used only one type of airplane and in the face of a dire situation would face a costly venture of finding replacements or counteracting bad publicity. Stop flight connections Southwest Airlines needs to stop allowing customers to book connecting flights through their network. Instead, customers should book two separate flights and treat these as independent of each other. This means that the onus is on the customer to allow enough time for connections and possible delays. This alleviates the stress put on ground operations in the airports and will save the airline both time, resources and costs. It will also help to ensure that turnaround times are kept at 15 minutes.