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Management of Customer Services

Muhammad Akbar A1KW202001


Ms. Shabana Farrukh
Ms. Shaheen Kamal
Ms. Kausar Sultana

Southwest Airline Case Study

Q.No.1. What are the strengths on which the company has been able to be
profitable, even during the recession?
ANS. There are five major carriers in the U.S. and they account for over 80% of the
airline market share. United is the largest airline with 22.1% market share and is
categorized as a major carrier, whereas Southwest is a national carriers with 4.4%
market share.

1. The major carriers utilize a hub and spoke travel model where passengers are
brought to a central location on smaller planes, and transferred to larger planes for
major routes. Southwest operates on a point-to-point system where more flights are
direct.

2. The majority of airlines expenses are fixed costs; these include fuel, planes,
labour and facilities. Half of these fixed costs are labour.

3. A carrier's passenger capacity is measured in Available seat miles (ASM). An ASM


is one seat flown one mile. Carrier productivity is calculated by dividing total
operating costs by ASM. Load factor is another measure of airline utilization of ASM
and is measured by dividing revenue passenger miles (RPM) by ASM. Finally yield is
calculated by diving passenger revenue by RPM. Yield is an expression of the cost of
flying one passenger on mile.

4. The airline within an airline concept was an attempt by the major carriers to make
their hub and spoke systems coexists with the Southwest model of point-to-point.
This was devised as a way to compete with Southwest on similar routes. Originally
Continental had their Continental Lite service, however due to high costs they
abandoned it. United has their Shuttle by United service and is in direct competition
with Southwest on nine routes.

5. Fifty nine percent of Southwest's ASM are flown in the western U.S. Superior
customer service, operations, creative marketing, and commitment to people
characterize Southwest's model.

6. Southwest's commitment to customer service has led to an excellent track record.


They held the unofficial Triple Crown in customer service for three consecutive years.
The Triple Crown consists in being the best in on time performance, baggage
handling, and customer satisfaction. This is an amazing feat considering no other
airline has held all three components for a single month.

7. Southwest has a major advantage over other airlines because it operates a single
type of plane, the Boeing 737. This means that all their pilots, facilities, and crews
are trained on any plane that Southwest owns. Southwest also operates a fleet with
an average age of 7 years. This means that they have less maintenance problems,
and this leads to fewer delays, and higher customer service.

8. Southwest relies on direct ticket booking and does not heavily utilize travel agents
this is a cost saver. They also do not have full food service on their flights, leading to
a faster turn around. Southwest also has a unique open seating system, with no
assigned seats the planes load faster.

9. Southwest does not fly into major hub airports in most cities, this leads to lower
gate costs, less congestion, and quicker turn around times.

10. Southwest has been marketed as the low price leader, and their planes have
been painted in funky colours, fun loving environment & Wi-Fi internet facility on
flight. Southwest views its major competition as the automobile and not other
airlines.

Therefore, Southwest remained profitable because its success is built upon cocktail of
low costs, low fare tickets, rapid rewards programme, frequent flights, operational
efficiency, rapid expansion into new cities & towns, best paid pilots, crew & technical
staff in the aviation industry.

Q.No.2. Do you see this organisation having good rapport with the
customers and how did they manage?
ANS. What does Southwest know that no one else in airlines does? It keeps things
simple and consistent, which drives costs down, maximizes productive assets, and
helps manage customer expectations.
Southwest airlines do meet customer expectations when it comes to service. They
base their model on the motto, which states that “if the employees are satisfied,
dedicated, & energetic; they will take good care of the customers. When the
customers are happy, they will come back & that makes the shareholders happy.”
Southwest’s pilots earn 20-40% more salary than other airline pilots, so is the case
with other staff, earning above average industry salaries & wages. That’s why; they
possess a great deal of energy, momentum & motivation to meet customer
expectations and build the company’s rapport henceforth & excel in customer’s
satisfaction.
Here are the ways, which help to manage rapport & sustain the competitive
advantage.

One Plane Fits All


Unlike the network carriers and their commuter surrogates, which operate all manner
of regional jets, turboprops, and narrow-body and wide-body aircraft, Southwest flies
just one plane type, the Boeing 737 series? That saves Southwest millions in
maintenance costs—spare-parts inventories, mechanic training and other nuts-and-
bolts airline issues. It also gives the airline unique flexibility to move its 527 aircraft
throughout the route network without costly disruptions and reconfigurations.

Point-to-Point Flying
Network carriers rely on a hub-and-spoke system, which laboriously collects
passengers from "spoke" cities, flies them to a central "hub" airport, and then
redistributes them to other spokes. Not Southwest. Most of its flying is nonstop
between two points. That minimizes the time that planes sit on the ground at
crowded, delay-prone hubs and allows the average Southwest aircraft to be in the air
for more than an hour longer each day than a similarly sized jet flown by a network
carrier. Southwest's avoid-the-hubs strategy also pays dividends in on-time
operations. Southwest's 78 percent on-time performance in June is eight percentage
points higher than the industry average and higher than that of any of its major
competitors.

Simple In-Flight Service


Business travelers haven't always loved Southwest's über-simple service, but it's
looking better and better as competitors cut back. There is just one class of service,
a decent coach cabin that is slightly more spacious than those of Southwest's
competitors. There are no assigned seats. There have never been meals, just
beverages and snacks. Keeping it basic allows Southwest to unload a flight, clean
and restock the plane, and board another flight full of passengers in as little as 20
minutes compared with as much as 90 minutes on a network airline. Airline efficiency
experts say that the savings allow
each Southwest jet to fly an extra flight per day. Extra flights mean extra revenue.

No Frills, No Fees
As other carriers have rushed to remove perks and pile on fees and restrictions,
Southwest has kept its customer proposition streamlined and transparent. The airline
only sells one-way fares and only in a few price "buckets." That not only keeps costs
down—complex fare structures are expensive to manage—it convinces fliers that
they are getting value for money. Prices are all-inclusive too. Southwest doesn't
have fuel surcharges, doesn't charge for standby travel or ticket changes, and
continues to permit travelers to check two pieces of luggage free. And since every
seat on every flight is virtually identical, travelers know exactly what they will get
when they make a purchase.

Strong Management
The public face of Southwest Airlines for a generation, hard-drinking, chain-smoking,
always-leave-'em laughing Herb Kelleher, finally stepped away from the carrier
earlier this year. Kelleher's bonhomie masked the discipline that Southwest has had
throughout its history. The airline has always avoided fads and eschewed anything
that increased costs or complicated the basic travel proposition. When it has changed
—last year it ended its infamous cattle-call boarding process to favor its most
frequent fliers and highest-fare customers—it has done so without slowing down the
movement of aircraft. Management ranks are lean, but well compensated and, most
importantly, productive. The top executives of Southwest generated 10 times more
revenue per dollar of compensation than did the C-suite types at some of the
network carriers.

A Relatively Happy Workforce


Network carriers have railed for decades about the power of their employee unions.
But guess who the most unionized carrier in the nation is? Southwest, of course. The
airline says that 87 percent of its employees belong to a union. Southwest has never
had a strike, and now that the network carriers have whacked away at salaries and
benefits, Southwest staffers are generally the highest paid in the industry. But since
Southwest has about 30 percent fewer employees per aircraft than its network
competitors, it has the lowest non-fuel C.A.S.M. (cost per available seat mile) of any
of the major carriers.

Aggressive Fuel Hedging


Rampaging fuel prices now represent around 40 percent of an airline's costs, but, as
usual, Southwest Airlines has been ahead of the curve. Since 1999, the airline's
aggressive fuel-hedging program has saved it an estimated $3.5 billion. In the first
quarter, for example, it paid $1.98 a gallon for fuel, approximately a dollar less than
its network competitors. And Southwest's future position is admirable: It is 70
percent hedged at $51 a barrel through the end of the year and 55 percent hedged
at the same price next year.
In a world of $140-a-barrel oil, suggesting that any airline is a guaranteed winner is
beyond hubris. But this much can be said: Southwest Airlines is sitting on a pile of
cash and fuel hedges and has a proven and easily adaptable service model. And a
history shows that Southwest has comfortably survived every airline-industry
downturn, then grown rapidly and profited hugely when the business cycle turns.

Southwest's most powerful organizational competency--the "secret ingredient" that


makes it so distinctive--is its ability to build and sustained high performance
relationships among managers, employees, unions, and suppliers. These
relationships are characterized by shared goals, shared knowledge, and mutual
respect.

Herb Kelleher, founder of Southwest, has been quoted as saying that "We're in the
Customer service business; we just happen to provide airline transportation".2
Award winning customer service is a distinguishing characteristic of Southwest and it
is referred to internally as “Positively Outrageous Service”. It means that from the
top to bottom everyone does whatever he or she can to satisfy the customer. This
includes Herb Kelleher, who has been known for helping out baggage handlers on
Thanksgiving. It is through emphasizing the customer and employee that Southwest
is able to differentiate itself from others in the airline industry. On a more technical
level, each employee or group within Southwest has his or her own customer. This
means that every employee ‘serves’ in one way or another despite not being directly
involved with the passenger. The mechanic’s customer is the pilot and the caterer’s
is the flight attendant.

That’s why, Southwest customers say that Southwest’s flights are always on time,
reliable and they can fly where they want to go.

Q.NO.3. Discuss the approach of this organisation with reference to the


competitors?

ANS. Southwest’s business approach is to provide safe, reliable, short duration air
service with lowest possible fair by following their model to offer low cost travel with
point to point quality service, high aircraft utilization, no bagge travel fees, time
based performance & just 15 minutes gate turnaround, no or limited use of travel
agents to save cost, welcoming online & credit card bookings, allowing early birds &
excellence in everything.
Southwest’s approach is to serve the domestic routes unlike other major US airlines.
The airline Rapid Reward Programme has been instrumental component to build
customer loyalty.

Southwest did not employ the “hub-and-spoke” approach used by other major
airlines, such as United, American, and Delta. Instead, its approach was short haul
(average flight time was 55 minutes) and point-to-point (e.g., Dallas to Houston, Los
Angeles to Phoenix). Southwest had no assigned seats, paid its crews by trip, and
used less congested airports (e.g., Baltimore instead of Washington’s Dulles or
Reagan; Manchester, N.H., instead of Boston, Mass.).
Forty-six percent of Southwest’s passenger revenue was generated by online
bookings via southwest.com. In 2002, the cost per booking via the Internet was
about $1, compared to the cost per booking of $6-$8 through a travel agent. Terra
Lycos, the largest global Internet network, reported that Southwest received 50
percent more searches than any other airline.
Southwest pilots were the only pilots of a major U.S. airline who did not belong to a
national union. National union rules limited the number of hours pilots could fly. But
Southwest’s pilots were unionized independently, allowing them to fly far more hours
than pilots at other airlines.
Other workers at Southwest were nationally unionized, but their contracts were
flexible enough to allow them to jump in and help out, regardless of the task at
hand. From the time a plane landed until it was ready for takeoff took approximately
20 minutes at Southwest, and required a ground crew of four plus two people at the
gate.
By comparison, turnaround time at United Airlines was closer to 35 minutes and
required a ground crew of 12 plus three gate agents
CEO Herb Kelleher, who founded Southwest, was deeply committed to a philosophy
of putting employees first. “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’s walls were filled with photographs of its employees. More than 1,000
married couples (2,000 employees) worked for the airline. The average age of a
Southwest employee was 34 years.
Southwest employees were among the highest paid in the industry and the company
enjoyed low employee turnover relative to the airline industry.

Southwest’s culture of hard work, high-energy, fun, local autonomy, and creativity
was reinforced through training at its University of People, encouragement of in-
flight contests, and recognition of personal initiative. Being in the people business
meant a rigorous approach to hiring new employees. In 2001, Southwest reviewed
194,821 resumes and hired 6,406 new employees. The company’s hiring process
was somewhat unique: Peers screened candidates and conducted interviews; pilots
hired pilots, and gate agents hired gate agents. To better understand what the
company sought in candidates, Southwest interviewed its top employees in each job
function (e.g., pilots, gate agents, baggage handlers, ground crew) and identified
their common strengths, then used these profiles to identify top candidates during
the interview process. Southwest hired for attitude as much as aptitude. Noted CEO
Kelleher, “We want people who do things well, with laughter and grace.”

Southwest initiated the first profit-sharing plan in the U.S. airline industry in 1974
and offered profit sharing to its employees every year since then. Through this plan,
employees owned about 10 percent of the company stock. In 2000, Southwest
offered its employees a record-setting $138Mm in profit sharing. This tax-deferred
compensation represented an additional 14.1 percent of each employee’s annual
salary.

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