Southwest Airlines

Wow.  I was thinking about this the other day.  Southwest Airlines has gone through some many changes lately (i.e., buying Air Tran, flying into ATL, etc.).  An article was written today that says Southwest Airlines’ ranking for on time arrivals has decreased.  Could it be because of all of the recent changes over the last few years?

When I studied for my Masters degree several years ago, I did a lot of research on the airline because I thought they had a great model.  One of the amazing things about the company was that they only went into small airports and didn’t do the traditional ‘hub and spoke’ route system.  I’m sure that flying into ATL is not helping their on time arrival numbers.

I’ll share with you an essay I wrote about them in 2010ish.  Let me know your thoughts.

My have they changed . . . 

The Air Southwest Company was founded by Rollin King, M. Lamar Muse, and Herbert Kelleher in 1966 as a commuter airline that would serve three cities in Texas. In February 1968, the Texas Aeronautics Commission granted Air Southwest permission to fly routes between Dallas, Houston, and San Antonio. After several legal battles, the airline now known as Southwest Air began flying operations on June 18, 1971. Six roundtrip flights between San Antonio and Dallas and twelve flights between Dallas and Houston were offered for $20 each leg.

Referencing its home base, Love Field in Dallas, Southwest offered a “no-frill” approach and used the theme of “love” throughout its operations. In the early years, flight attendants were scantily dressed and served “love bites” (peanuts) and “love potions” (drinks).

Owning four aircraft and now offering flights between San Antonio and Houston and hourly flights between Houston and Dallas by 1971’s end, Southwest was ever expanding. Instead of using Houston Intercontinental Airport, Southwest moved its Houston Operation to a more customer friendly Houston Hobby Airport. Houston Hobby was much closer to downtown Houston and more convenient to its passenger base, commuters. By the end of 1973, Southwest began to offer cargo service between the airports it served.

In 1972, legal controversy once again beset the airline. The cities of Dallas and Fort Worth filed suit against Southwest in an attempt to force it from Love Field to the new Dallas-Fort Worth Regional Airport. The city would be able to charge higher rent and landing fees at the new airport. In 1968, other airlines had already signed contracts to move from Love Field to the newly constructed airport, but Southwest, not yet in existence, had not. This was a giant break for Southwest as a federal judge ruled that the airline could remain operating out of the cheaper Love Field. By 1974, all of Southwest’s competitors had moved out of Love Field to the Dallas-Fort Worth Airport, thus giving Southwest a monopoly of a cheaper, more convenient airport.

By the 1980s, Southwest implemented self-ticketing machines and offered service outside of Texas, including New Orleans, Tulsa, Oklahoma City, and Albuquerque. Southwest increased its fleet of Boeing 737s to 13 aircraft. In 1978, Southwest applied its first rate increase by adding three dollars to its one-way tickets and five dollars to its roundtrip fares.

In 1981, Herbert Kelleher took over as president and chief executive officer. Kelleher took on an aggressive approach toward his airline’s expansion. By 1982, Southwest added service to Kansas City, San Diego, Los Angeles, San Francisco, Las Vegas, and Phoenix, despite the slumping economy.

The 1980s were packed with expansion to more cities throughout the United States and the introduction of new generation aircraft, the Boeing 737-300. Southwest offered very low fares and took on a “fun” approach, offering in-flight games and giveaways and allowing employees to wear golf shirts, shorts, and tennis shoes. By the end of the 1980s, Kelleher announced that he would double the size of his airline by 1994. Southwest began to target California and began a fare war with American and United Airlines. By the end of the decade, Southwest was now a major player in the Airline industry with 94 aircraft and service to 27 cities in the United States.

Throughout the 1990s, Southwest expanded to more than 2,300 flights a day and now served the east coast. Although several airlines failed due to substantial debt in the early 1990s, Southwest’s conservative financial management allowed them to turn profits year after year. By the mid-1990s, Southwest was posting nearly $3 billion in revenues and adding 10,000 employees.   For its twenty-fifth straight year, in 1997, Southwest posted a profit of $318 million.

In 2001, Kelleher was replaced as president and CEO by James Parker and Coleen Barret, respectively. Although September 11, 2001 caused many airlines to lose billions of dollars, lay off employees, and file bankruptcy, Southwest was able to post profits and avoid layoffs. By 2004, Southwest had 417 aircraft, served 59 destinations, and was posting nearly $7 billion dollars in revenues.   Southwest currently flies more than 500 aircraft to 64 cities in the United States (The Gale Group, 2006).

Fleet Mix and Aircraft
Southwest currently has 536 Boeing 737 aircraft with an average age of 9 years.   These aircraft average seven flights per day, averaging 626 miles each flight. In 1997, Southwest became Boeing’s “launch customer” for their 737-700 aircraft. They were also Boeing’s “launch customer” of 737-500s.

All new aircraft arriving from Boeing include the better performance, blended winglets. All 737-700s, previously owned, have been reconfigured with new blended winglets. Furthermore, in early 2007, Southwest began converting the wings of 90 737-300s to include the blended winglets. Nearly all of Southwest’s 737s have been converted to a new paint scheme which includes adding canyon blue to its traditional orange, red, and gold scheme (Southwest Airlines, 2008).

 Route Structure

            Unlike many other airlines, Southwest does not use the typical “hub-and-spoke” route system. Rather, Southwest concentrates on point-to-point service, which provides frequent and convenient flights (U. S. SEC, 2007). This type of route structure offers Southwest’s customers a means for travelers to have few connecting flights with flights of short distances (Bonsor, 2001).  Furthermore, Southwest flies from secondary airports, which provides the airline with lower landing fees and minimum delays. Southwest has a concrete policy concerning their route selection: the airline will only fly on routes the will fill enough seats, costs are kept low by offering more flights per day per aircraft per crew, and lower costs translate to lower fares (Meersman, 2004, p. 45). Nearly eighty percent of Southwest’s passengers fly nonstop to their destinations without multiple stops or aircraft changes. This route structure delivers high customer satisfaction by utilizing a cost-effective system: delivering the passenger from “point A to point B without stopping” (Owen, 2006).

Hub Strategies

By not using the “hub-and-spoke” strategy that most other airlines use, Southwest uses a rolling scheduling system that produces a flight schedule that consists of flights leaving spaced out throughout the day, rather than several flights departing at one time during peak hours. Unlike in the “hub-and-spoke” system, Southwest is able to adhere to their “more flights per day per aircraft per crew” policy by negating the need for customers to wait for connecting flights, resulting in turn around times of twenty minutes or less (Meersman, 2004, p. 45). Arguably, more revenue can be made by airlines operating out of hubs. Southwest, however, capitalizes on its quick turnarounds to offer low cost fares to its customers. These quick turnarounds are a result of Southwest’s overall strategy, which requires a simple product and configuration of assets consisting of aircraft, routes, and maintenance facilities (Gittell, 2005, p. 15). The end result is inherent of something completely different than the typical “hub-and-spoke” system.

Southwest currently serves 64 cities in 32 different states, with more than 3,300 flights a day. Although Southwest consistently denies having any “hubs,” some cities they service offer a considerable amount of connecting options than others. For example, Chicago Midway, Baltimore, Phoenix, Nashville, Las Vegas, and Oakland offer a multitude of connecting options.   Las Vegas, for example, has non-stop flights to all buteight of Southwest’s served cities (Southwest Airlines, 2008).

Labor and Personnel Issues

Southwest’s no-frills, relaxed attitude often carries over to its labor relations and personnel issues. Southwest is one of the largest unionized carriers, with ten collective bargaining agreements covering over 85% of nearly 34,000 employees. According to Kelleher, they have “never treated them as adversaries [and have] always treated them as partners.” He believes that “if that canoe goes down, [Southwest is] going down with it” (Johnston, 2006). Furthermore, Southwest includes union leaders in all aspects of the business and “if they have an issue, we take care of it as quickly as we possibly can” (Johnston, 2006), according to Kelleher.

Beginning with Lamar Muse, Southwest’s first CEO and President, Southwest’s philosophy was one that would never spend time and resources to remain non-Union. His theory was both financial and pragmatic. From the beginnings of Southwest, Muse felt that if they were to remain non-union, the airline would have to be at the forefront of the industry with respect to wages and benefits (Harris, 2008). However, being new to the industry, small, and “broke,” Southwest could not contemplate doing such. Even after Muse, Kelleher, now retired, Southwest would to sustain a good relationship with its labor unions.

Employees of Southwest, according to the company policy, “come first, customers come second, and stock holders come third” (Harris, 2008). This policy creates an atmosphere, in which, if the employees are happy, they are going to treat the customers great. Furthermore, Southwest fosters an environment that promotes respectful and effective relationships with all employees and unions.

Warrior Spirit Servant’s Heart Fun-LUVing Attitude
Work Hard
Desire to be the bestBe courageousDisplay a sense of urgencyPersevere
Innovate Follow The Golden Rule

Adhere to the Basic Principles

Treat others with respect

Put others first

Be egalitarian

Demonstrate proactive Customer Service

Embrace the SWA Family

Have FUN

Don’t take yourself too seriously

Maintain perspective (balance)

Celebrate successes

Enjoy your work

Be a passionate Teamplayer

Airline specialist, Harold Sirkin, says “Southwest works because people pull together to do what they need to get a plane turned around” (Turrill, pg 5, 2002). Southwest’s overall strategy of keeping low fairs includes quick turnaround times. Averaging no more than fifteen minutes from reaching the gate to leaving the gate, compared to industry average of 30 minutes, Southwest’s uses an unusual strategy. Pilots and flight attendants help clean the aircraft or check passengers at the gate. According to Sirkin, “if it means the pilots need to load bags, they’ll do it” (Turrill, pg 6, 2002).

Employee productivity is a large part of Southwest’s success. The embedded culture allows the approximately 80 employees per aircraft, vice 155 employees per aircraft on United and American, service nearly twenty-five hundred passengers per employee, while American’s and United’s employees serve approximately eight hundred passengers per employee (Turrill, pg 8, 2002).

Although Southwest usually and historically enjoys good labor relations, the airline hit somewhat of a snag in October 2008 resulting from labor negotiations beginning in January. Federal mediation was requested because the airline wanted to issue stock options to employees, rather than providing pay raises. The union found this unacceptable, but “for lower-paid employees, stock options may sound good, but they’re looking for something in their paycheck that they can take to the bank,” (Mutzabaugh, 2008) according to a local union leader.

In January 2009, an agreement with its pilots union was reached after disputes of pay raises, retroactive pay, and retirement benefits ensued. The airline and the union reached a five-year agreement that included a rule that would prevent Southwest from “code sharing” with other airlines. Southwest’s pilots have been upset with recent agreements with Canada’s WestJet and Mexico’s Volaris Airlines (Torbenson, 2008).   The pilots feel that rather than helping other airlines expand and ultimately cutting capacity and wages, Southwest should expand and use their own aircraft and pilots to fly into the new markets.

Marketing and Distribution

Southwest believes in a simple philosophy. People will fly Southwest if the price is right and they have a good time getting there on time.   Southwest’s most common passengers are small business executives who travel short distances. These customer base, being value-conscious, prefer frequent, convenient, and low cost fares. The remainder of this customer base is those passengers who are price savvy shoppers that want a cheap fare.

By targeting specific demographics and using a simplified ticket pricing strategy, Southwest offers a product that their customer base is comfortable with. Southwest offers this product and their customers get what they paid for: a ‘no frills’ flight to where they need to go on basic Boeing 737s with no assigned seating.   Unlike other airlines that offer First Class seating and have competition among themselves by adding (or subtracting) benefits, Southwest identifies with their customers who believe the frills are not important.

Being a company that has grown to be one of the most recognized names in air travel, Southwest is somewhat of a marketing genius (McNulty, 2001). After the airline industry was in despair after September 11, 2001, Southwest rebounded remarkably by flying nearly the same passenger miles as it did twelve months prior. Furthermore, Southwest was the only airline to turn a profit that year (McCarthy, 2001).

Southwest does not rely on travel agents to distribute their products. Primarily, travel bookings are done primarily through direct marketing. Customers can purchase tickets only by phone and the Internet (Miller, 1999), thus cutting out the middleman. Southwest also does not interline or offer joint fares with other airlines, nor does it have any commuter feeder relationships.

In January 1995, Southwest became the first major airline to introduce a Ticketless Travel option, eliminating the need to print and then process a paper ticket altogether (Harrison, 1999). This innovation was a result of losing an agreement with United, Continental, and Delta. These airlines felt threatened by Southwest and refused them access to their computer reservation systems. To Southwest’s benefit, this allowed customers to completely bypass the computer reservation systems of major airlines by obtaining a confirmation number and showing up for the flight (Freiberg and Freiberg, 1997). Southwest’s passengers loved the idea and the paperwork was reduced, therefore saving money.  Shortly after this innovation, Southwest began offering fares through the Southtwest.com.

Maintenance

            Southwest has intermediate maintenance (B & C checks) at Dallas, Houston, and Phoenix. Heavy maintenance for Southwest is conducted in Dallas, TX. Furthermore, with an all Boeing 737 fleet, Southwest is able to capitalize on a somewhat simplified workforce and logistical ease of obtaining parts for their aircraft.

Current Airline Issues

            Southwest is currently involved in labor negotiations with the Transport Workers Union, Local 555. The TWU represents ramp, operations, provisioning, and freight agents. The agreement came after a “long and arduous – both negotiating committees worked diligently and in good faith,” (MarketWatch, 2009) according to Gary Kelly, Southwest’s Chairmen, President, and CEO. These negotiations began after their current contract became amendable in June 2008. This new, tentative agreement is for a three-year contract. Kelly is urging their “employees to give serious consideration to the tentative agreement, keeping in mind that in these uncertain economic times, our common goal should be to take needed steps to protect Employee jobs and to ensure the financial viability of our Company” (MarketWatch, 2009).

Another current issue for Southwest is a public relations concern involving their newly revealed “bikini jet.” Southwest recently painted one of their aircraft with a picture of swimsuit model, Bar Refaeli. This new paint scheme is a result of a new promotional campaign with Sports Illustrated for for SI’s upcoming “Swimsuit Edition.”

Customers are complaining about the new paint scheme and feel that they are being forced to board an aircraft “plastered with soft porn” ( ). Furthermore, “many women do not enjoy having their husbands exposed to explicit pictures or explaining to young children why the lady on the plane is ‘showing her boobies,’” wrote Chris and Sharon Kraemer, in a letter to Southwest. According to a Southwest spokesman, the airline has received about twenty-five percent negative feedback about the promotion.

Vision for Success

Southwest believes that their employees are number one. As said before, their company policy is that the employees “come first, customers come second, and stock holders come third” (Harris, 2008). This policy creates an atmosphere, in which, if the employees are happy, they are going to treat the customers great.   Furthermore, with the employees working hard to provide quick turnarounds, the company uses their point-to-point route structure to keep fares low and customers walking on to their aircraft.

Summary

Southwest Airlines is quite an impressive company. From the beginning, the airline persevered as a small airline with little to no capital to one of the most well known airlines in business today. With their simplified, “no-frills” approach, Southwest capitalizes on their targeted market to provide a product that is highly valued to their customers: a low fare ticket to where they want to go. To do this, Southwest employs people that enjoy working for the company and implores them to be innovative in finding new, better ways of conducting their business. The great work atmosphere that Southwest provides, allows the employees to be enjoy their work, work hard, and make their customers happy and coming back.

References

Banstetter, Trebor (2009, February 29). Southwest Airlines Takes Flack for Sports Illustrated Swimsuit-model Promotion. StarTelegram.com, Retrieved February 28, 2009, from http://www.startelegram.com/business/story/1230374.html

Bonsor, Kevin,  (2001, June 14). How Airlines Work. Retrieved February 1, 2009, Website: http://science.howstuffworks.com/airline.htm.

 Gittell, Jody Hoffer (2005). he Southwest Airlines Way: The Power of Relationships for     Superior Performance. New York, NY: McGraw-Hill.

Harris, Joe (2008, January 31). Southwest Airlines Reaches Tentative Pact with    Pilots. Dallas Morning News, Retrieved February 15, 2008, from http://   www.dallasnews.com/sharedcontent/dws/bus/stories/DN southwest_31bus.ART0.State.Edition1.4c4ae66.html

 Harris, Joe (2008). LABOR RELATIONS AT SOUTHWEST AIRLINES. Nuts About     Southwest, Retrieved February 15, 2008, from http://www.blogsouthwest.com/blog/labor-relations-southwest-airlines

Freiberg, K. and Freiberg, J. (1997) Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success. New York, NY: Broadway Books.

Harrison, D. (1999). A ticket to ride. Current Technology Magazine.

Johnston, Theresa (2006). View from the Top: Southwest Airlines’ Kelleher          Advises Managing in Good Times for the Bad. Stanford GSB News,        Retrieved February 15, 2008, from http://www.gsb.stanford.edu/news/headlines/vftt_kelleher.shtml McCarthy, M. (2001, December 4). Southwest ad’s quick return works. USA Today.

MarketWatch, (2009, February 27). Southwest Airlines Announces Tentative Agreement With TWU 555. The Wall Street Journal, Retrieved February 28, 2009, from http://www.marketwatch.com/news/story/Southwest-Airlines-Announces-Tentative Agreement/story.aspx guid=%7B14ECF315%2D17BA%2D4B2D%2DA0DC%2D594175335EA6%7D Meersman, Hilde (2004). Optimizing Strategies in the Air Transport Business. New York:   Garant.

Mutzabaugh, Been (2008). Labor Talks at Southwest Airlines Hit Snag. USA Today, Retrieved February 15, 2009, from http://www.usatoday.com/travel/flights/item.aspxtype=blog&ak=57821609.blog

McNulty, S. (2001, October 20). Southwest Airlines: Short on frills, big on morale.  Financial Times.

Owen, Bill (2006, July 25). Nuts About Southwest. Retrieved February 1, 2009, from      The Point of our Route Network Web site: http://blogsouthwest.com/blog/the-point-of-our-route-network.

Southwest Airlines, (2008, December 15). Southwest Airlines Fact Sheet. Retrieved January 24, 2009, Web site: http://www.southwest.com/about_swa/press/factsheet.html#Fleet.

The Gale Group, (2006). Southwest Airlines Co. – Company History. Retrieved January 18, 2009, Web site: http://www.fundinguniverse.com/company-histories/Southwest-Airlines-Co-History.html.

Turrill, R (Ed.). (2002). GSBA 543 Managerial Perspectives. Los Angeles, CA: USC  University Bookstore Custom Publishing.  United States Security and Exchange Commission, (2007). Southwest Airlines Co.  Annual Report. Retrieved February 1, 2009, Web site: http://sec.gov/Archives/edgar/data/92380/000095013408001572/d53331e10vk.htm

 

Author: Gale

Just another person living the dream. I love to travel and write about my adventures.

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