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Was the advantage really

sustainable?
1991-1993
Southwests share in the market had increased from 26% to 45%
Uniteds share fell from 38% to 30%
Continentals share also fell
Southwests success spawned a number of imitators like Kiwi,
Reno, United and Continental.
Major concern
Was southwest getting the most in competitive advantage from its
own people?
Could the competitors imitate Southwests successful HR Practices?

Background
Started flying on June18, 1971 with three Boeing 737 aircrafts
serving Dallas, Houston and San Antonio
Headquartered at Love Field in Dallas

Texas
International
Brainiff
Continental

Used political and regulatory means to


keep Southwest off the ground
Waged a four year long legal battle
leaving Southwest bankrupt at the
time of its first flight
Outcome: The Wright Amendment
It prohibited any air carrier from
offering direct service into Love Field
Neither airlines nor travel agents were
permitted to advertise connections
through love field
Basically aimed at stopping southwest

C
O
M
P
ET
IT
O
R
S

STRATEGY

Put flight attendants in hot pants


Encouraged its employees to
Identify with others, deliver great customer service and have fun
Used its location Love Field to launch an advertising campaign Make love, not war
Result
American withdrew from some cities and
USAir made a number of marketing and
Southwests stock ticker
service mistakes.
symbol
All Southwests aircrafts have a
Southwest seized the opportunity to
small heart emblazoned on
expand in California and in 1989, from a
their sides
zero market share, it became the
Hearts used prominently on
leading airline in passenger boardings in
corporate communications and
1993.
advertising
In 1995, it served 10 cities, with more
Pursued a low fare strategy
than 70 percent average market share

Pricing Strategy
Only two fares A regular coach
fare and an off-peak fare

Has its own frequent flyer club based on


the number of trips flown, not mileage, one
free ride for accumulating 16 segments

Prices same within a


state

P
R
O
F
I
T

Never sold interline connections


to another carrier

Never offers meal on the


flights, instead serves
beverages and peanuts

Awards took less mileage to


obtain and were more widely
available

Competitive Advantage
Cost Structure

Kelleher recognized that the lowest cost provider could leverage


that cost advantage most where costs are highest
Over a decade (1984 1994) , Southwests cost only increased by 20
percent (From 5.86 cents in 1984 to 7.1 cents per mile 1994)
Saved on maintenance and training costs by using only one type of
aircraft.

Sources of Competitive Advantage


Human Resource
Southwest pilots
flies an average of
70 hours a month
while other pilots
average 50 hours a
month
Volunteer to help
customers in need

Customer
Satisfaction
Customer always
capitalised in
corporate
communications.
Employees
treated as
internal
customers

Employee
productivity
Only 81 employees
per aircraft (others
had 157 and 152)
Served an average
of 2,443 customers
per employee(others
only 795 and 840)
Use of less
congested airports

SUCCESS STORY
Profitable in everyone of the
last 21 years, a record
achieved by no other major US
airline, profitable even in the
1991-92 period when major
players were facing bankruptcy
Earned the highest returns of
any publicly traded U.S. stock
Won the Monthly Triple Crown
24 times
Won the Annual Triple Crown
thrice

1993

1994

Southwest

7.13

7.03

Continental

7.64

7.56

USAir

10.94

10.74

Airline costs per available seat mile

Leadership

Herb Kelleher

Kelleher credited with being the principal


driving force behind most of the changes
occuring in the airline market
Herb was able to get out effort from the people
who work for him
Brilliant, tough and charming
From the beginning, he had adopted a slightly
over the top style- always ready to promote a
party and have fun
Constantly interacted with customers and
employees at Southwest
Work is important dont spoil it with
seriousness

Leadership

Colleen Barrett

Reflects relaxed management style


Officially responsible for communication, marketing,
public relation and people
Unofficially described as combination of den mother,
management guru, and customer ombudsman
She is the backbone of the airline

Leadership

Ann Rhoades

Human resource function renamed as the people


department
Ann takes the charge seriously and believes in the
two Cs compassion and common sense
Believes that it is imperative to get the right people
into HR
Her department is also continuously feeding back
information to employees such as on time
performance and turn around times

RECRUITMENT Policy

Extraordinarily selective(1993- interviewed only 16000 applicants out of


98000 and selected only 2700
Looks for creative spirit
Emphasis on peer recruiting
Sometimes customers involved in hiring new flight attendants
Process focuses on teamwork and positive attitude
Even the advertisements emphasize the southwest spirit
Identifies the key components that comprise effective performance and
behavior by analyzing the common characteristics(like teamwork) of the top
employees.
Attitude most important , skills can be developed
Rejected applicants are potential customers, therefore are not made to
feel inferior
Prefer people without extensive industry experience
Does not have a nepotism policy

Advertisement Campaigns
e
v
i
t
a
e
r
C
Sou
thw
spi est
ri t

TRAINING
New Hire Celebration
Designed to get new
employees enthused and
excited
Training oriented towards
customer service

All new hires exposed to the


history, principles, values,
mission and culture of the
company
Emphasis on team work
and team building

The Climb
Two and a half day ropes
and outward bound
course
Attended by intact work
teams
Entire team lives together
cut-off from phones, cars
and contact with other
outside issues.
Each team develops and
action plan to insure that
their new behaviors are

TRAINING
Manager Training
Three and a half day course
on leadership, revenue
management and on how the
business works
100 percent internal
A member of the senior team
always talks openly with the
participants

Other Trainings
Two day training for front line leaders
80 hours of training per year for
supervisors
Courses include usual offering of
communication, time management and
career planning
Customer service and interpersonal
relationships also focused upon.

The Front-Line Forum


12-15 individuals with ten to fifteen years of work experience are
brought together to discuss how the company is doing and how it has
changed.
Explore questions like Have we delivered?

WORKFORCE

Salaries

Low pay in the beginning, high pay when you get seniority
Employees can bid for shifts and work hours
Pilots and Flight Attendants are paid by the trip
Average wage rate at Southwest ($44,305) lower than that of
American($45,801) and United(54,380)
Southwest employees have the flexibility to work more and earn more
Executive compensation modest
No executive stock option plan until a few years ago
No country club memberships and no company cars
Profit sharing covers all employees who have been with the firm for
over a year
Temporary workers paid salary on a pro-rata basis
Company encourages days on the field so that employees can try front
line jobs

WORKFORCE
Composition and Union
Average age of the workforce is 34 years
23 percent of the employees are minorities (10-12 percent at the
managerial level)
Women widely represented at the highest levels of the company
Low turnover
Never had a layoff or furlough
Proof of ex-employees who can be called in case of emergencies
89 percent unionized with 9 separate unions
The last walkout a decade ago

THE SOUTHWEST SPIRIT


Hard Work
Customer
Satisfaction

Trust and
Respect

Dedication

Equality
Family and
Fun
Cost
Consciousness

Kindness

Competitive Threat
Industry characterized by poor labor relations and
authoritarian management
Continental Airlines
Frank Lorenzo led
it to bankruptcy

Trans Airline
Carl Icahn faced
numerous strikes

Eastern Airlines
Ultimately failed
because of the
conflict

American Airlines
Flight attendants
struck in an
attempt to roll out
wages

Continental, USAir
Employee oriented
Management

Continental Lite

Emerged from its second bankruptcy in 1993 under the leadership of CEO
Bob Fergusan
Company was split into two operations
CA Lite low fare
flights for short haul

First class service at business


class prices

Fergusan believed that by imitating Southwests practices, he could take


advantage of greater density, shorter flights and avoid competing directly
with Southwest, at least in the short term
By summer it had expanded to 28 percent of Continentals capacity, with
plans to grow upto 40 percent
Fares were cut dramatically
Earlier results were mixed
customer reaction wasnt always positive, flyers were miffed because of no
priority boarding or meal service

Increased workloads for flight attendants


Lack of breaks between flights
Pilots were not provided meals in busy days
March, 1994 Continental had worst marks of any domestic airline in terms
of customer complaints, on-time performance and mishandled baggage.
Financial Results
Lost $38.5 million on revenues
Expected to break even in mid of 1994
Only 20percent of CAlites routes were losing money CFO Daniel Garton

Fergussan denied that he had communicaation problems, saw these just as


initial problems.

Uniteds Shuttle

Oct1, 1994 begins its own airline-within-an-airline on the West Coast.


Operation named The Shuttle
The goal was to cut costs on these routes by 30 percent
Service would include advance seat assignments, a first class cabin and
Uniteds frequent flyer mileage program

Declaration of war
On July12, United had completed negotiations for an employee buyout
The former CFO replaced by a Chrysler Executive, Gerald Greenwald who
had no previous airline industry experience
Not everyone was sure of the success of the shuttle

Conclusion
SW airlines has gradually grown from a small airline
with 3 aircrafts to a major airline service
Since it is the only airline profitable after the Sep11
incident we recommend a few points:
- Expand their services
- Low pricing strategies
- Upgradation of hardware and software
- Lower operational costs by using cost saving
technology

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