Southwest Airlines

SHASHANK SHIVANI SIDDHI SHRUTI. D SHRUTI. M SHRUTI. G SHIVIKA SHAZIA SHREYA

In The Beginning

As company legend goes, the very first route map

was drawn on a cocktail napkin

during a meeting between

Herb Kelleher and Rollin King.

Leadership / Structure:
Herbert D. Kelleher Gary Kelly Colleen Barrett
Executive Chairman of the Board Vice Chairman of the Board and Chief Executive Officer President, Secretary, and Director

CEOs
Gary Kelly : current CEO, President and Chairman of Southwest Airlines co . Jane Parker : former CEO and ViceChairman. Resigned in July 2004.
Herb Kelleher : Co-founder and ex-CEO resigned in 2001.

Timeline
Founded on 16th March 1967 June 18, 1971 Began airline service Flights to Houston, Dallas, and San Antonio 1977 SW stock listed on NYSE as "LUV" 1982 Appointed Herbert D. Kelleher President, CEO,& Chairman of the Board

1984 #1 in customer satisfaction (4th year in a row) 1990 announce billion dollar revenue mark Officially declared a "Major" airline! May 2003 Top ranked domestic passenger airliner 2006 Southwests 31st consecutive year of profitability

SOUTHWESTS SUCCESS STORY

Southwest was one of the biggest success stories in America. It cut out the competitors in most market, despite offering a no frills service. Achieve its low fares by eliminating unnecessary costs. Utilized its employees in the most productive way possible.

SWA Employee Branding.

Employees are Service Flag Bearers. Best Way To Portray Service. Company valued employees and vise versa Warm and informal relationship. Fun along with high degree of autonomy.

SOUTHWESTS SUCCESS STORY

Employee Satisfaction

SWA Success

Customer Service

Map: SW Cities / Destinations

TROUBLE BREWING
The company was undergoing a subtle transformation.
Major problems faced: 1. Increased Competition 2. Rising Costs 3. Labor Problems 4. Customer Relations

LOOMING COMPETITION
Southwest, under threat of losing its dominant positioning in the market. Reasons, rise of several low cost competitors. Notable competitors: JetBlue and AirTran. In early-2000s, low cost competition existed on 70% of American routes. Low cost carriers held about 30% of the market share.

RISE OF JETBLUE
Set up in 1998 JetBlue had an exceptional growth rate. Doubled in 2002, grew by 66% in 2003 and was expected to grow by over 30% in 2004. Its passenger capacity rose by 43% in the first half of 2004.

JETBLUE, A BETTER AIRLINE

Rated no. 1 in an annual airline quality survey. According to a study by the US Department of Transportation, JetBlue ranked 1st among 19 US airlines in on-time performance. It had the best record I industry for baggage handling. JetBlue was a non-union airline.

 In comparison to Southwest, JetBlue emphasized of providing slick and stylish services. It offered: 1. more legroom 2. comfortable leather seats 3. set back television sets 4. free internet @ some lounges 5. best punctuality(by records)

COMPARISON OF SERVICES
Airline Assigned seats
NO

Ticket change-fees
NO

Food

In-flight Entertainmen t
Wisecracking flight attendants. Nothing right now TV at each seat

Southwest

Snacks only

AirTran JetBlue

Yes Yes

$50 $25

Snacks only Snacks only

CUSTOMER RELATIONS
Seating was based on first come first serve basis.
Security had to be increased after September 11. Due to delay in checking, passengers could not get the seats they wanted and many of them stopped flying.

 Lightly staffed airport made it difficult to get fast tickets.

Refusal to accept e-mail inquiries also lowered its popularity with customers. In a survey conducted by the Consumer Respect Group, Southwest came last scoring 5.2/10.

RISING COSTS
An astronomical rise in costs made Southwest almost at par with the costs of full service airlines.
The major attributes hiking costs were: 1. increased labor costs 2. an early retirement plan 3. rising fuel prices

LABOR PROBLEMS
In 2002, flight attendants union protested against pay and working conditions at Southwest.
In 2004, starting pay for flight attendants was US$ 14000 and median pay was $24000, which couldnt suffice the workers needs.

 Flight attendants wanted better terms of working. Which included their not having to clean cabins between flights. They wanted to be remunerated for the all the time spent on dealing with security procedures or cleaning the plane. Also wanted their 4 week training period to be paid and compensation for work holidays.

 They felt they were given secondary treatment as compared to pilots and some other categories of employees.
Union planned to negotiate for better stock options for flight attendants. Also, flight attendants asked for faster raises to reach the top pay level.

CONSEQUENCES
Pay would increase by 31% over a period of 4 years. Starting pay for the flight attendants would also be doubled. Provisions for better pay for working on holidays and more stock options for attendants. They would also get faster raises and reach the top pay scale after 14 years instead of 17 years,

CHARISMATIC KELLEHER
Southwest was always associated with Kelleher. His flamboyant and fun loving attitude pervaded the airline an created an informal culture. He knew thousands of employees by name and often communicated with people personally. Large part of motivation was drawn from Kelleher.

 He resolved the deadlock with the flight attendants union even after he had resigned. He helped the airlines save more than 2 million dollars in six weeks. People treated each other with respect no matter which level of hierarchy they belonged. It was the culture which helped achieve its record profitability.

POST KELLEHER SCENARIO

When Kelleher was around, employees would go extra mile in the name of Herb.
If you were a union leader, you couldnt badmouth Kelleher, he was an icon. But anybody new was just going to be a corporate executive.

 Parker was staid and reserved, Kelleher was outgoing and unconventional. Employees found a drastic change. Parker soon came in for severe criticism from many employees who directly compared him with Kelleher. Parker thereby could never associate himself with the organisation.

 All Mr. Parker will ever be remembered for is that he was the little man who destroyed Herbs wonderful airline, message posted on Forbes magazine.
Everything that Herb Kelleher built has just become a house of cards because of Parker.(Forbes)

In The News

Airlines are constantly in search of new revenue sources. Travelers have gotten used to paying for food on board. But it's going to be harder to adjust to fees for services that used to be free.
~ Chris McGinnis
The Ticket editor (travel newsletter)
http://biz.yahoo.com/hmoney/070430/043007_airline_fees_moneymag.html?.v=4

Kellys challenges
Gary C.Kelly replaced Jim Parker as the CEO of SW airlines on July 15-2004. Kelly has stepped in at the time when SW airlines is in a desperate need to find the substitute for Kelleher. Kellys biggest challenge is to recapture the espirit de corps of SWA. As per the analysts Kelly needs to stick to its original business model of best services at the lowest fares.

..
Kelly will be expected to encourage employee oriented culture based on its principles of shared knowledge & mutual respect. Kelly would be called successful only when he is able to lead the work culture which was developed by Kelleher right from the time the South West Airlines was born with the same belongingness and care.

Future of SOUTH WEST in the increasing light of competetion

Jet Blue, Air Tran efficient competitors. Other major carriers entering in this field. If Wright amendment repealed,Luv field would be open to increased competition from major and start up carriers. Large airlines like united and Delta have developed lower cost short haul divisions thus trying to emulate South West s formula.

........
At this point of time South West has adapted many features to support their network SW has introduced national advertising including NFL sponsorship. Frequent flyer programs are launched including branded credit cards & interline & market agreements with international carrier. The carriers average stage length has also increased over the last several years.

.
SW has now expanded into geographic markets & climates that are not as compatible with its original fair-weather lowcongestion strategy.

It has made one of its landing point in transcontinental service a secondary city.

QUESTIONS

After over 30 years of profitability and a culture that was enviable, southwest began to face several problems in the early-2000s. Discuss the problems experienced by southwest. Were these problems attributable to kellehers retirement?

 Do you think kelly will be able to restore the culture at southwest? Parker was not acceptable to southwest employees do you think this was because kelleher was deeply ingrained in southwest culture? Discuss relationship between leadership and culture.