A

Presentation
on
SOUTH WESTAIRLINES

Presented By:

RAVI MODH
DIPAK PRAJAPTI
MAHESH RAVAL
 Southwest Airlines
• Background :
- Founded in 1967 - Love Field in Dallas, TX
- 35,000 Employees (started Flying in 1972)
- Nation’s 4th largest airline (59+ cities and 65M
Customers)
- Only two fares: regular coach and off-peak

• Results and Outcomes:

- Excellent customer service (rated the best for on-time

performance, fewest lost bags; fewest customer
complaints – 13 years in a row)
- Safest airline in the world (never had a fatal accident)
- Profitable every year (33 years in a row); only airline
in the world
 History of Southwest Airlines
 On February 20, 1968 the Texan Aeronautical Commissions approved plans to fly
in 3 states, the c5eators are Rollin King and Herb Kelleher
 Expanded through 1980’s to 1990’s by 1993 Southwest Airlines could fly in 34
states in 15 states
 They also expanded into new destinations California, Northwest, Florida, East
Coast
 The competitors could not keep up, “500 pound cockroach that was too big to
stamp out:
 While the airfare was dropping the traffic went up tremendously, in 1994 United
started a shuttle service, the large air carriers were feeding traffic into transpacific
and transcontinental routes, they could not keep up
 In 2004 Southwest Airlines is fourth largest domestic carrier, customer boarded
 In 2002 they traveled in 58 cities and 30 states, it has been 13 years in a row that
they are profitable, even after September 11, 2001, net income fell 52.9 percent,
Southwest was the only airline company that had a profit all the other companies
were in the red
 Was the first airline to achieve the Triple Crown, they had five difference Triple
Crown dedicated to the Employees of Southwest Airlines for their excellent
achievements.
 Southwest Airlines and Some Other Airlines: -
2008 Profit/Loss

Southwest Airlines $63.5M

$32.4M*

American Airlines $(748M)

U.S. Air $(1.0 B)

Delta $(1 B)
 Southwest Airlines
• One of “Best 100 Companies” and in the “top 10 – Most
Admired” companies to work for:
- FUN emphasized!
- Family emphasized!
- Caring for employees emphasized!
- Customers emphasized!
- Identify with fellow employees (as internal
customers!)
- Ten-year Labor agreement! (81% unionized)

•Employees “Love” to work there!!

 Mission Statement

• “Southwest has a dedication

to the highest quality of
customer service delivered
with a sense of warmth,
friendliness, individual pride,
and company spirit.”
Goals and Objectives
• Ensure highest quality Customer
Service in the air or on the ground.
• Ready to help customers under any
circumstances.
• Are there to ensure you make it from
point A to point B safely
• To stay the most successful with low-
fare, high frequency point-to-point
carrier.
Southwest’s Values, Philosophy, and Spirit

These are three basic values (“the culture”) or philosophical

pillars at Southwest Airlines:

Value 1: Work should be fun ...it can be play . . . Enjoy it.

Value 2: Work is important ...don’t spoil with seriousness.

Value 3: People are important...each one makes a different.

Beliefs:
•Organizations are transparent
• Family and “Hugs”
 Key Ratios
• Profit Margin: 7.23%
• Return on Assets: 4.01%
• Return on Equity: 8.98%
• Revenue: 7.58B
• Gross Profit: 2.49B
• Operating Cash Flow: 2.23B
• Market Capital: 14.41B
• Current: .941
• Debt to Equity: .299
• Total Debt: 2.00B
 People at Southwest:
- Hard-working (94 employees per plane vs.. Americans
160 and United 160 - Industry average of 130; serves
2,500 passengers per employee Vs. United and American
average less than 1,000)

- Motivated

- Have FUN - fun place to work

- Treat employees as internal customers

- Employees are comfortable

- Fundamental business philosophy is that employees

come first!

- Not a lot of employees!

 Internal Strengths and
Weaknesses

• Strengths
– Best low-fare carrier
– Triple Crown for annual performance
– Quickly seize a strategic opportunity when arises
– “Team Spirit” Employees come 1st not customers
– Made 20% of flights to one stop
– Even though Unionized still negotiate flexible work
hours
– Marketing on the web, 50% revenue from online
booking
• Weaknesses
– Conservative Growth Tactics
– Cuts cost in customer service areas
– Not subscribed to centralized reservation
service
– Other Co.’s now using same management
strategies since found out about SW
Airlines
– Provides service in only 68 cities
Market share
Market share

Southwest
Jetblue

23 American Airlines
Delta
US Airways
Air Tran
 Airline Industry
Environment
Five Forces Model
• Potential competitors-low
• Rivalry among established companies-
high
• Bargaining power of buyers-high
• Bargaining power of suppliers-high
• Threat of substitutes-low
 PEST Analysis

• Political Factors
• Economic Factors
• Social/Sociological Factors
• Technological Factors
 Factors in Macro
Environment
• Consumer demand
• Government regulations
• Technological advances
• International agreements
 Organizational Culture

• Encourage participation

• Employee ownership/empowerment

• “Freedom, informality, interplay”

Distinctive Competencies

• Organizational culture

• Customer focused

• Low-cost structure
 Why is Southwest
Successful?
• “NOT” because of:
– Only flies 737’s
– Only Small Airports All Results/
– Low Ticket Prices
– Quick Turnaround Outcomes/
– Low Cost
– Customer Loyalty Effects/
– Efficiency
– Profitable Symptoms
– Rate of Productivity
 Why is Southwest
Successful?
• Because of its Internal Business
Environment and/ or Execution Systems—
the Causes:
– Culture, Core Values, Philosophies and
Principles (Vision Direction)
– Effective Management of its Workplace
– Effective Exemplar Structures, Systems
and Processes (fit between elements of the
Execution System)
Integrated Low Cost/Differentiation Strategy
Southwest Airlines
Low Cost Differentiation
Use a single aircraft model
Focus on customer
(Boeing 737)
satisfaction
Use secondary airports
High level of employee
Fly short routes dedication
No meals
New flight services for
15 minute turnaround time business travelers
No reserved seats (phones and faxes)
No travel agent reservations S.W.A.’s Culture, Values,
Philosophies & Principles
 Possible Strategies

• Expand into more cities

– Increase amount of shorter destination
flights into the larger airports
• Increase direct flights
– Purchase bigger planes
– Get agreements with Airports for flights
• Eventually look to acquire American
Airlines
 Business Strategies

• Functional strategy
• Business level strategy
• Strategic fit with internal organization
 Decisions

• Based on QSPM, the best looking

strategy would be to expand into more
cities
• The longer non-stop flights have more
of a competitive market and would be
hard to keep low cost flights
 Implementation

• Increase
– The number of flights per day by 5%
– Increase revenue by 15%
• Helps to cover new increasing cost
– Flights into larger airports
• Decrease
– Operating costs by 10%
– Flights to cities with more than 4 flights a
day
 Evaluations

• Quarterly reports
• Average daily flights
• Average passenger per flight
• Quarterly meetings to evaluate current
plan and make necessary changes as
needed
 UPDATE!!

• Expanded into 86 cities as of 2008

• Operates over 3,500 flights per day

 Future Issues/ Problems
for SWA
• Going International
• Merger (Acquisition of another airline)
• Growth:
– Internal?
– External?
– Both?
• Will the Corporate culture change when
Herb leaves?